IN THE SUPREME COURT OF OHIO. COLONIAL VILLAGE LTD., AN OHIO LTD. PART., CONSOLIDATED CASE NOS , And

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1 IN THE SUPREME COURT OF OHIO COLONIAL VILLAGE LTD., AN OHIO LTD. PART., CONSOLIDATED CASE NOS , And COLONIAL TERRACE APARTMENTS (AN OHIO CONSOLIDATED CASE GENERAL PART.), NO And COLONIAL TERRACE APARTMENTS II (AN OHIO CONSOLIDATED CASE GENERAL PART.), NO V. Appellants-Cross Appellees, Appeal from the Ohio Board of Tax Appeals WASHINGTON COUNTY BOARD OF Board of Tax Appeals REVISION, WASHINGTON COUNTY AUDITOR, Case Nos A-574, 2005-A-987,2005-A-993, Appellees-Cross Appellants, A-992 And THE TAX COMMISSIONER OF OHIO Appellee-Cross Appellee. THIRD MERIT BRIEF OF APPELLANTS-CROSS APPELLEES, COLONIAL VILLAGE LTD., COLONIAL TERRACE APARTMENTS AND COLONIAL TERRACE APARTMENTS II JAN t1 2C CLERK OF COURT OF OHIO `-^ Karen H. Bauemschmidt # (COUNSEL OF RECORD) Karen H. Bauemschmidt Co., LPA 1370 West 6 i Street, Suite 200 Cleveland, Ohio (216) (216) Facsimile COUNSEL FOR APPELLANTS-CROSS APPELLEES, COLONIAL VILLAGE LTD., AN OHIO LTD. PART., COLONIAL TERRACE APARTMENTS (AN OHIO GENERAL PART.), COLONIAL TERRACE APARTMENTS II (AN OHIO GENERAL PART.) James R. Gorry # (COUNSEL OF RECORD) Rich, Crites & Dittmer, LLC 300 East Broad Street, Suite 300 Columbus, Ohio (614) (614) Facsimile COUNSEL FOR APPELLEES-CROSS APPELLANTS, WASHINGTON COUNTY BOARD OF REVISION AND WASHINGTON COUNTY AUDITOR

2 Nancy H. Rogers (COUNSEL OF RECORD) Ohio Attorney General 30 East Broad Street, 17th Floor Columbus, Ohio (614) COUNSEL FOR APPELLEE-CROSS APPELLEE, RICHARD A. LEVIN TAX COMMISSIONER OF OHIO

3 TABLE OF CONTENTS TABLE OF AUTHORITIES ii APPELLANTS-CROSS APPELLEES' BRIEF IN RESPONSE TO CROSS APPEAL... 1 APPELLANTS-CROSS APPELLEES' REPLY BRIEF...22 CONCLUSION CERTIFICATE OF SERVICE APPENDIX Aristocrat Apartments Association v. Stark Cty. Bd. of Revision (October 15, 1999), B.T.A. Case No. 98-G-1465, unreported The Appraisal of Real Estate, The Appraisal Institute (13`" Ed., 2008)

4 TABLE OF AUTHORITIES Cases Alliance Towers, Ltd v. Stark Cty. Bd. of Revision ( 1988), 37 Ohio St.3d , 12, 19, 24, 25 Aristocrat Apartments Association v. Stark Cly. Bd. of Revision (October 15, 1999), B.T.A. Case No. 98-G-1465, unreported... 3,27 Bank One Marietta N.A. aka J. P. Morgan Chase v. Washington Cty. Bd of Revision (December 22, 2006) B.T.A. No T Camelot Distribution Co., Inc. v. Stark Cty. Bd of Revision (November 12, 2004), B.T.A. Case No M-24...: Canton City School District Bd of Edn. v. Stark Cty. Bd of Revision (May 19, 2006), B.T.A. Case No H Canton Towers, Ltd v. Stark Cty. Bd of Revision (1983), 3 Ohio St.3d 4... passim Citizens Financial Corp. v. Porterfield (1971), 25 Ohio St.2d 53, 226 N.E.2d ,23 Colonial Village Ltd v. Washington Cty. Bd of Revision, 114 Ohio St.3d 493, 2007-Ohio passim Colonial Village Ltd., An Ohio Ltd. Part, vs. Washington Cty. Bd. of Revision (Apri121, 2006), BTA Case No A DAK, PLL v. Franklin Cty. Bd of Revision, 105 Ohio St.3d 84, 2005-Ohio ,23 Dayton-Montgomery Cry. Port Auth. v. Montgomery Cty. Bd. of Revision, 113 Ohio St.3 d 281, 2007-Ohio Good Shepherd Home for the Aged v. Ashland Cty. Bd of Revision (March 4, 2005), B.T.A. Case No J ,28 Meijer, Inc. v. Montgomery Cty. Bd of Revision, 75 Ohio St. 3d 181, 1996-Ohio ,24 Natl. Church Residences v. Licking Cty. Bd. ofrevision (1995), 73 Ohio St. 3d 397, 653 N.E.2d Oberlin Manor, Ltd. v. Lorain Cty. Bd. of Revision (1989), 45 Ohio St.3d , 12, 19, 24, 25 Olmsted Falls Village Assn. v. Cuyahoga Cty. Bd. of Revision (1996), 75 Ohio St.3d 552, 665 N.E.2d Rollman & Sons Co. v. Hamilton Cty. Bd of Revision (1955), 163 Ohio St. 363, 127 N.E.2d I... 23,24 Throckmorton v. Hamilton Cty. Bd ofrevision (1996), 75 Ohio St.3d 227, N.E.2d ,23 Villa Park Limited v. Clark Cty. Board of Revision. (1994), 68 Ohio St. 3d 215, 625 N.E.2d Rules The Appraisal of Real Estate, The Appraisal Institute (13`h Ed., 2008)... 8

5 APPELLANTS-CROSS APPELLEES' BRIEF IN RESPONSE TO CROSS APPEAL. The Appellants-Cross Appellees ("Appellants"), Colonial Village Ltd., an Ohio Ltd. Part. ("Colonial Village"), Colonial Terrace Apartments, an Ohio General Part. ("Colonial Terrace I"), and Colonial Terrace Apartments II, an Ohio General Part. ("Colonial Terrace II"), file this Third Merit Brief in response to the Merit Brief filed by the Appellees-Cross Appellants, the Washington County Auditor and Washington County Board of Revision ("Appellees"). It must be noted that starting on page 1 of the Appellees' Merit Brief and continuing throughout the brief there are negative and sarcastic editorial comments that are not based upon evidence. Since the sarcastic, editorial comments are so pervasive, the Appellants will not separately address this issue within this Brief. On pages 1, 6, and 21 of their brief, the Appellees alleged that Mr. Snyder obtained and verified his "market rental information" from multiple listing services. This statement is factually incorrect. Mr. Snyder testified that he started with multiple listing services and interviewed realtors, appraisers, and owners in the Marietta marketplace to determine market rent. (Supp. 61). Mr. Snyder utilized market rental information for the Colonial properties. On pages 1, 7, 8 and 29, the Appellees alleged that Mr. Snyder relied on the actual HUD expenses to value each of the Colonial properties. Further, the Appellees alleged that Mr. Snyder did not examine the actual HUD expenses before making his estimation of market expenses. These two allegations by the Appellees are conflicting and incorrect. Mr. Snyder's appraisal reports clearly stated that he examined the actual HUD expenses. (Supp. 145, 281, 417, 581). However, there is no evidence in the record to indicate that Mr. Snyder utilized the actual HUD expenses. Although Mr. Snyder reviewed actual expenses, he projected market expenses based

6 on his review of "comparable expenses of apartments on a regional basis which ranged from $2,500 to $3,000 per unit." (Supp. 146, 282, 418, 582). On page 4 of their brief, the Appellees would have this Court overlook the education, appraisal experience and real estate experience of Mr. Snyder by attacking the location of Mr. Snyder's office in New Philadelphia, Ohio as opposed to being in Marietta, Ohio. The Appellees overlooked the fact that New Philadelphia is located just north of Marietta. More importantly, the Appellees chose to ignore Mr. Snyder's competency statement in his appraisal, which stated as follows: Jurisdictional competency is based on the number of appraisals completed previously in Marietta as well as the extent of personal market research completed for the assignment including reviews of the public record data as well as data derived from individual owners, McCarthy Real Estate, Cranston Real Estate and Century 21 Real Estate. (Supp. 75, 208, 343, 506). On page 3 of their brief, the Appellees incorrectly stated that the BTA found Mr. Snyder's 2003 appraisal report for Colonial Village to be inconsistent with accepted appraisal practices. This is a misstatement. The BTA in Colonial Village Ltd., An Ohio Ltd Part. vs. Washington Cty. Bd of Revision (April 21, 2006), BTA Case No A-574 never stated that Mr. Snyder's appraisal was inconsistent with accepted appraisal practices. The BTA upheld Mr. Snyder's determination of market rent, reserves for replacement, and capitalization rate. I On pages 4, 21, 23 and 24, the Appellees attacked Mr. Snyder for not testifying before the BTA. Specifically, on page 4, the Appellees stated that "Appellants well understood that their only chance of obtaining a reduction in the value of the properties from the BTA was by not allowing Snyder to be examined by the BTA or to be cross-examined by the County Auditor." I As stated in the Appellants' Proposition of Laws Nos. IV and IX, the BTA erred when it rejected Mr. Snyder's vacancy and credit loss rate and projection of market expenses. 2

7 There is absolutely no basis for Appellees' allegation against Mr. Snyder. Mr. Snyder did not testify at the BTA hearing since he testified at the Board of Revision hearing. Therefore, Mr. Snyder's testimony regarding his 2004 appraisal reports was already part of the Statutory Transcript for the BTA to review. (Tape of BOR hearing.) The Appellees, as the members of the Board of Revision, had the opportunity to cross-examine Mr. Snyder regarding his appraisals at the Board of Revision hearing. Further, Mr. Snyder testified at the BTA hearing regarding the valuation of Colonial Village for the tax year In Aristocrat Apartments Association v. Stark Cry. Bd. of Revision (October 15, 1999), B.T.A. Case No. 98-G-1465, unreported, Mr. Snyder testified at only the Board of Revision regarding his appraisal report of the Aristocrat property. Mr. Snyder did not testify at the BTA hearing. The BTA found that Mr. Snyder's testimony and appraisal report, as introduced into evidence at the Board of Revision hearing, was the best evidence of value for the property at issue. As in Aristocrat, Mr. Snyder testified at the Board of Revision regarding his appraisal reports for the Colonial properties for the tax year Mr. Snyder did not testify at the BTA hearing regarding the Colonial properties for the tax year Pursuant to the BTA's holding in Aristocrat, Mr. Snyder was not required to testify before the BTA since he testified to his appraisals before the Board of Revision. Further, Mr. Snyder's testimony at the Board of Revision regarding his appraisal reports of the Colonial properties was available for the BTA's review. On page 5 of their brief, the Appellees misrelied on the BTA's rejection of Mr. Snyder's sales comparison approach of Colonial Village for the tax year Without restating the Appellants' complete argument set forth on page 30 of Appellants' brief, the February 1,

8 BTA decision improperly rejected Mr. Snyder's Sales Nos. 2 and 3 on the basis that Sales Nos. 2 and 3 "rent for substantially less than the subject." (Appellants' Merit Brief, Appx. 15). To make this determination, the BTA improperly compared the conventional rents of Sales Nos. 2 and 3 with the HUD rents of the subject property. The HUD rents cannot be utilized to value or analyze conventional sales data. The BTA should have compared the conventional rental rates of Mr. Snyder's sales comparables to the rental rates of conventional rental projects in the subject market. The rental comparables provided by Mr. Snyder within his appraisal report of Colonial Village for the tax year 2003 indicated a rental range of $300 per month to $379 per month for one bedroom units and $375 per month to $529 per month for two bedroom units. (Supp ). Mr. Snyder's Sales No. 2 had a rental rate of $300 per month for a one bedroom unit and $375 per month for a two bedroom unit. (Supp. 125). Clearly, the rental rates of Mr. Snyder's Sales No. 2 were within the range of rental rates of conventional rental projects in the subject's market prior to any adjustments for inherent differences. Therefore, the BTA erred when it compared the conventional rentals of Mr. Snyder's sales comparables to the subject's HUD rentals, which were well above market rents. The BTA, in its decision dated February 1, 2008, erred in stating that "three of the five comparable sales in the sale comparison approach provided an adjusted per unit value of at least $24,000; yet Mr. Snyder concluded to a value of $22,000 per unit." The BTA failed to recognize that the other two sales were at $19,000 per unit and $25,500 per unit. More importantly, the BTA failed to review Mr. Snyder's testimony where he explained his reconciliation as follows: "It truly is a reconciliation. It is not an average. Looking at the sales, I felt there was a merit to all five sales, actually. I mean effectively, in my mind Sale 5 and Sale 4 in particular, perhaps while offset each other, to a degree, in terms of upper and lower end of the range. If you take the 4

9 upper and lower ranges and layer it $22,738 to $24,750 and considering that I felt the $22,000 was reasonable considering all five sales." (Supp. 46). Mr. Snyder explained his rationale in determining a value via the sales comparison approach of $22,000 per unit for Colonial Village for the tax year However, the February 1, 2008 BTA decision for Colonial Village for the tax year 2003 incorrectly determined a valuation of $1,162,930, which equates to $25,842 per unit. (Appellants' Merit Brief, Appx. 17). The adjusted sales data does not support the BTA's valuation of $25,842 per unit. On pages 7, 21, and 22 of their brief, the Appellees attacked Mr. Snyder's projection of market rent for the Colonial properties for the tax year 2004 on the basis that Mr. Snyder did not indicate where he obtained or verified his rental data. The Appellees overlooked the fact that Mr. Snyder's appraisal reports specifically state that he held discussions with apartment managers regarding market rental rates. (Supp. 277, 413, 577). Specifically, Mr. Snyder stated that "the monthly rents reflected in the comparables are reflective of May 2005 rates; however, discussions with apartment managers revealed that rents have been generally stagnant over the past two years." (Supp. 277, 413, 577). The BTA correctly upheld Mr. Snyder's projection of market rent for the Colonial properties for the tax year 2004 in its decisions dated February 22, On page 7 of their brief, the Appellees alleged that Mr. Snyder utilized actual HUD expenses to estimate market expenses in all four of his appraisals. This allegation is incorrect. In Colonial Village, Mr. Snyder utilized market expenses at $2,650 per unit (for tax years 2003 and 2004) while actual HUD expenses in 2003 were $2,729 per unit ($122,823 = 45 units = $2,729 per unit). (Supp , 281). For Colonial Terrace I, Mr. Snyder utilized market expenses at $2,500 per unit while actual expenses in 2004 were $2,993 per unit ($128,704 = 43 5

10 units = $2,993 per unit). (Supp ). For Colonial Terrace II for the tax year 2004, Mr. Snyder utilized market expenses at $2,500 per unit while actual expenses in 2004 were $3,141 per unit ($260,723 = 83 units = $3,141 per unit). (Supp ). There is no evidence in the record to indicate that Mr. Snyder utilized actual HUD expenses to project market expenses for the Colonial properties. On page 7 of their brief, the Appellees incorrectly provided a partial quote as to the difference between HUD expenses and conventional apartment expenses. However, the testimony cited by the Appellees is misleading since Mr. Snyder had been testifying as to a former HUD elevator apartment building [not Colonial Village 2003] wherein the entire question and response was as follows: Q. And HUD expenses are typically higher than conventional apartment expenses. Would you agree with that? A. Yes, I do agree. That was confirmed to have gone over from HUD to market rates and finances, so it's my intent that represents that and was confirmed to me as beine market not HUD related. (Supp. 58). (Emphasis added). When asked specifically about the actual expenses at the subject property, Mr. Snyder testified as follows regarding Colonial Village for the tax year 2003: explaining: Q. Similar. Okay. And your position would be that the operating expenses from the subject as a conventional unit, market expenses would be similar to the actual HUD expenses. A. In this case, given the type of unit and the nature of this, I would say yes. (Supp. 59). Mr. Snyder continued his testimony at a later question on cross-examination by "Well, I'm saying you do not have fixed and variable expenses and I agree with you in that regard. But under the HUD format with virtually no vacancy, you don't have the turnover expense. You don't have typically as much in advertising. You don't have as 6

11 much management. Sometimes it becomes an issue on HUD versus non-related HUD projects, too, so that's part of the thought process." (Supp ). Mr. Snyder did not utilize actual HUD expenses for the Colonial properties. While Mr. Snyder reviewed actual expenses, he relied on regional market data to estimate market expenses. (Supp. 146, , , 582). Mr. Snyder found that comparable units typically range from $2,500 per unit to $3,000 per unit on a regional basis. (Supp. 146, , , 582). Based on this data, Mr. Snyder opined to an estimated expense of $2,650 per unit for Colonial Village (for the tax years 2003 and 2004) and $2,500 per unit for Colonial Terrace I and II (for the tax year 2004). (Supp. 146, 282, 418, 582). The Appellees alleged that the BTA properly rejected Mr. Snyder's projection of expenses based on an "expense ratio." Without restating the Appellants' entire argument set forth on pages 27 through 30 of its merit brief, the BTA erred when it found that Mr. Snyder calculated market expenses based on an expense ratio. Mr. Snyder's appraisal reports for the tax years 2003 and 2004 clearly indicated that market expenses were projected on a^er unit basis. (Supp , , 582). Mr. Snyder testified that he did not utilize an expense ratio to calculate his projection of expenses for Colonial Village for the tax year (Supp. 63). Mr. Snyder further testified that he used expenses on a per dollar unit basis due to the fact that "investor and operators and management companies and people that I deal with on a daily basis use expenses per unit." (Supp. 63). Thus, the BTA erred when it disregarded the testimony and appraisal evidence of Mr. Snyder to find that Mr. Snyder utilized an expense ratio. On pages 8 and 29 of their brief, the Appellees faulted Mr. Snyder for not breaking down his per unit expenses by individual category or items. The Appellees offered no support for its assertion that Mr. Snyder was required to estimate expenses by category. The basis for proper 7

12 appraisal theory and practice can be found in The Appraisal Institute's leading authority and main textbook, The Appraisal of Real Estate, The Appraisal Institute (13th Ed., 2008). Pages 484 through 490 of The Appraisal of Real Estate, supra, sets forth a discussion regarding the calculation of expenses within an income approach valuation. (Appx. 1-7). However, The Appraisal of Real Estate, supra, does not specifically require expenses within an income approach valuation to be broken down into expense categories. (Appx. 1-7). Since Mr. Snyder utilized expenses on a per unit basis, he did not estimate expenses by category. The Appellees have failed in their attempt to negatively portray the utilization of expenses on a per unit basis; since Mr. Snyder followed proper appraisal practice. On page 8 of their brief, the Appellees' improperly compared Mr. Snyder's estimates of gross income to the actual HUD income of the Colonial properties. The Appellees' comparison of Mr. Snyder's effective gross income to actual HUD income has absolutely no bearing in this matter since Mr. Snyder and the BTA correctly used market rentals to estimate potential gross income as mandated by this Court in Canton Towers, Ltd. v. Stark Cty. Bd. of Revision (1983), 3 Ohio St.3d 4; Alliance Towers, Ltd. v. Stark Cry. Bd. of Revision (1988), 37 Ohio St.3d 16; Oberlin Manor, Ltd. v. Lorain Cry. Bd. of Revision (1989), 45 Ohio St.3d 56; and Colonial Village Ltd v. Washington Cry. Bd of Revision, 114 Ohio St.3d 493, 2007-Ohio The BTA specifically upheld Mr. Snyder's projection of market rent in its decisions dated February 1, 2008 and February 22, On pages 9 and 31 of their brief, the Appellees incorrectly stated that Mr. Snyder included a large amount of comparable expense data in his reports, which did not support his projection of market expenses for the Colonial properties. The comparable expense data referred to by the Appellees was provided by Mr. Snyder in support of his capitalization rate. (Supp. 147, 8

13 283, 419, 583). Specifically, Mr. Snyder utilized the sales data of ten (10) sales to extract capitalization rates. (Supp. 147, 283, 419, 583). The sales were located in surrounding counties throughout Ohio and occurred from April, 2001 to July, The sales data also indicated expense ratios for the ten (10) properties. (Supp. 147, 283, 419, 583). However, Mr. Snyder did not utilize these expense ratios to project market expenses, the since six (6) of the sales occurred in the year 2001 and three (3) of the sales occurred in the year (Supp. 147, 283, 419, 583). Mr. Snyder properly found that the expenses from the sales did not reflect 2003 and 2004 expenses. Mr. Snyder provided the sales data only in support of capitalization rates for the Colonial properties. On page 12 of their brief, the Appellees alleged that this Court erred in Colonial Village Ltd. v. Washington Cty. Bd. of Revision, 114 Ohio St.3d 493, 2007-Ohio-4641 when it found that the Auditor used a cost approach to value Colonial Village for the tax year Specifically, the Appellees alleged that there was no evidence (other than the property record card) to support this Court's finding the Auditor utilized a cost approach to value Colonial Village for the tax year However, this Court properly determined that the 2003 property record card for Colonial Village was competent and probative evidence of the Auditor's cost approach valuation. Id. at Specifically, the 2003 property record card for Colonial Village indicated that the five (5) apartment buildings were valued at the same reproduction cost. (Supp. 11). The property record card also indicated that the Auditor applied a physical depreciation factor of 25% to arrive at a total depreciated value for the five (5) apartment buildings. (Supp. 11). The total depreciated values for the apartment buildings were then added to the land value. (Supp ). No other methodologies were set forth on the 2003 property record card by the 9

14 Auditor to value Colonial Village. Based on this evidence, the Court properly held that the Auditor utilized a cost approach to value Colonial Village for the tax year On page 12 of their brief, the Appellees incorrectly alleged that the Appellants have provided no evidence which would trigger the BTA's duty to undertake an independent valuation of the Colonial properties. The Appellees have misstated the issue before the BTA. The issue was not whether there was sufficient evidence to "trigger" the BTA's duty to undertake an independent valuation of the Colonial properties. This Court in Colonial Village clearly held that Mr. Snyder's appraisal evidence was "sufficient evidence" to "trigger" the BTA's duty to undertake an independent valuation. Id. at 501. Rather, the issue is whether the BTA erred in making its independent valuations of the Colonial properties in its decisions dated February 1, 2008 and February 22, As stated in the Appellants' brief at pages 13 through 19, the BTA committed a legal error in its decisions dated February 1, 2008 and February 22, 2008 when it improperly made substitutions to Mr. Snyder's projection of market vacancy and credit loss and market expenses to "fashion" its final value conclusion for the Colonial properties. The BTA unlawfully and unreasonably substituted a 40% expense ratio within its pro forma income approach. The BTA's use of a 40% expense ratio was improper since it was not supported by market data. The BTA's use of an unsupported 40% expense ratio resulted in conflicting expenses among the Colonial properties. The BTA also erred when it made inconsistent substitutions to Mr. Snyder's vacancy and credit loss rate. The BTA erred in making its independent valuation of the Colonial properties when it failed to utilize Mr. Snyder's vacancy and credit loss rate and estimate of expenses, which were 10

15 supported by market data. Mr. Snyder's appraisal report for the tax year 2003 clearly states that his market vacancy and credit loss rate of 8% was based upon: a. His review of vacancy and collection loss with local realtors and rental agents. b. Vacancy rates increasing in apartment projects due to lower interest rates. c. Actual physical vacancies increasing to 6.2% in (Supp. 145). Mr. Snyder also testified that he made his determination of market vacancy and credit loss based upon "discussions with realtors and appraisers in the area where they felt that apartment complexes were typically falling, recognizing that the subject had been running from between 2.7% in 2001 to 3.2% in 2002 and 6.2% in So it was obvious that in a free-market system, the vacancy was going to be higher than on a subsidized basis." (Supp. 48). Mr. Snyder's appraisal reports for the Colonial properties for the tax year 2004 clearly stated his market vacancy and credit loss determination was based upon his review of vacancy and collection loss with local realtors and rental agencies and increasing vacancy rates in the marketplace due to abnormally low interest rates. (Supp. 417). Mr. Snyder made his projection of market expenses based upon a review of actual expenses and a review of expenses of comparable apartments. (Supp. 277, 413, 577). Mr. Snyder's projections of vacancy and credit loss and expenses for the Colonial properties were properly based on market data. This is contrasted with the BTA's determination of a vacancy, credit loss, and expenses, which were unsupported by market data. Mr. Snyder's income approaches utilized market rents, market vacancy and credit loss, market expenses and a capitalization rate based on conventional apartment market data. The BTA properly utilized Mr. Snyder's projection of potential gross income, reserves, and capitalization rate within its independent valuations of the Colonial properties. However, the 11

16 BTA erred when it failed to utilize Mr. Snyder's estimate of vacancy, credit loss, and expenses and substituted its own estimates, which were not supported market data. The Appellees alleged on page 12 of their brief that the "BTA is required by law to affirm the values as determined by the County Auditor and the County Board of Revision when it rejects the property owner's appraisal evidence." This statement is incorrect. The BTA could not rely on the Auditor's and Board of Revision's valuations of the Colonial properties, if the values are in contravention of Ohio law. There is specific case law in Ohio as to how subsidized rental projects must be valued. See Canton Towers, Ltd. v. Stark Cty. Bd ofrevision (1983), 3 Ohio St.3d 4; Alliance Towers, Ltd. v. Stark Cty. Bd of Revision (1988), 37 Ohio St.3d 16; Oberlin Manor, Ltd v. Lorain Cty. Bd of Revision (1989), 45 Ohio St.3d 56; and Colonial Village Ltd. v. Washington Cty. Bd. of Revision, 114 Ohio St.3d 493, 2007-Ohio Pursuant to Canton Towers, Alliance Towers, Oberlin Manor, and Colonial Village, subsidized properties must be valued based upon an income approach with due regard for market rent and current returns on mortgages and equities. The cost approach is not applicable in valuing subsidized apartment projects for the reason that the projects are not financially feasible to be constructed without the government subsidies. Alliance Towers, 37 Ohio St.3d at The Auditor's and Board of Revision's use of only a "flawed" cost approach to value the Colonial properties was in contravention of this Court's ruling in Canton Towers, supra, Alliance Towers, supra, Oberlin Manor, sunra, and Colonial Village, suyra, wherein the cost approach to value subsidized apartments was specifically rejected. The Auditor and Board of Revision erred when it failed to value the subject property via an income approach with due regard to "market rents from conventional apartments" and a capitalization rate based upon current market rates." 12

17 Canton Towers, supra. Pursuant to Ohio law, the BTA could not affirm the valuations made by the Auditor and Board of Revision. On page 14 of their brief, the Appellees alleged that the Auditor did not have to prove the validity or accuracy of the Auditor's valuations of the Colonial properties. In Dayton- Montgomery Cty. Port Auth. v. Montgomery Cty. Bd. of Revision, 113 Ohio St.3d 281, Ohio-1948, this Court specifically held that the BTA cannot rely on the Auditor's valuation, as set forth on the property record cards, when evidence presented to the Board of Revision or BTA contradicts the Auditor's valuation and no evidence have been adduced to support the Auditor's valuation. In Bank One Marietta N.A. aka JP. Morgan Chase v. Washington Cty. Bd of Revision (December 22, 2006) B.T.A. No T-1015, the BTA held that it would be inappropriate to rely upon the methodology set forth in property record cards when there is no associated testimony or corroborating evidence to determine the validity or accuracy of the data the Auditor relied upon. Thus, if the Auditor's valuation is challenged by contradicting evidence, the Auditor must present evidence to support the validity and accuracy of the valuation. Otherwise, it is improper for the court to rely on the Auditor's unsupported valuation. In the subject appeals, the appraisal evidence of Mr. Snyder clearly contradicted the Auditor's valuations of the Colonial properties. Further, Mr. Westbrook's testimony regarding the valuation methods utilized to value the Colonial properties was in contradiction to the valuations set forth on the property record cards.z Thus, the Appellees were required to present evidence to support the Auditor's valuation, which they failed to do. On pages 15 through 19 of their brief, the Appellees tried to rely on the testimony of Mr. Westbrook, who testified at the BTA hearing regarding the Auditor's valuations of the Colonial 2 The inconsistencies in Mr. Westbrook's testimony are discussed later in this brief and on pages 36 and 40 of Appellants' brief. 13

18 properties for the tax year However, Mr. Westbrook's testimony conflicted with the information set forth on the property record cards. Mr. Westbrook's testimony demonstrated that the valuation methodology utilized on the property record cards was flawed. The Appellants will first address the Appellees' allegations regarding Mr. Westbrook's testimony of the valuation of Colonial Village for the tax years 2003 and On page 15 of their brief, the Appellees incorrectly stated that Mr. Westbrook testified that the 2003 valuation of Colonial Village was not based on a cost approach. However, the Supreme Court has already decided this issue in Colonial Village wherein this Court found that the Auditor improperly utilized a cost approach to value Colonial Village for the tax year Ohio St.3d at On pages 15, 17 and 19 of their brief, the Appellees incorrectly stated that the Auditor did not utilize a cost approach to value Colonial Village for the tax year The 2003 property record card and the 2004 property record card for Colonial Village sets forth 9-nly a cost approach. Mr. Westbrook testified as follows to the 2004 Colonial Village property record card: Q And looking at the property record card that's in there, there doesn't appear to be any income approach that was utilized to value Colonial Village for the 2004 period. A. Not overtly. Q. Okay. But there's nowhere in that property record card to indicate an income approach was utilized? A. No. Q Is there anything in that property record card to indicate a sales comparison approach was utilized to value the subject property? A. No. 14

19 Q So based on that property record card that's in the Statutory Transcript, it appears that a cost approach was utilized to value the subject property which was Colonial Village for the 2004 tax year? A. That could be inferred. Q. Okay. Is there anything in the property record card to indicate otherwise? A. No, there isn't. (Supp. 635). The Appellees alleged that all three approaches (cost, market, and income) were utilized by the mass appraisal company to value Colonial Village for the tax year The Appellees rely on Mr. Westbrook's testimony that the market and income approaches were not set forth on the property record cards since the data would not fit onto the card. The Appellees alleged that the data would not fit onto the property record card, yet an income approach valuation is specifically listed on the property record card for all three Colonial properties for the tax year (Supp. 183, 327, 488). However, the income approaches set forth on the property record cards were not utilized by the Auditor in valuing the Colonial properties for the tax year The Appellees have provided no evidence that either a market or an income approach was actually utilized in the valuation of Colonial Village for the tax year On page 17 of their brief, the Appellees cited to Mr. Westbrook's testimony that the valuation of Colonial Village was based on "market based data in terms of rent, vacancy, and expense ratios" and "comparable properties within the county." However, there is no evidence in the record to support Mr. Westbrook's testimony. Mr. Westbrook could not testify as to specific sales that were utilized in the market approach. (Supp. 632, 635). Mr. Westbrook could not testify as to the market rents, vacancy rates, expenses or capitalization rate utilized within the alleged income approach valuation of Colonial Village. (Supp. 632, 635). Thus, there is no 15

20 evidence that a market or an income approach was actually prepared or utilized by the mass appraisal company to value Colonial Village for the tax year The only evidence in the record which shows how the Auditor valued Colonial Village for the tax year 2004 is the property record card. (Supp ). The 2004 property record card indicated that the mass appraisal company started with the 1998 cost approach valuation of Colonial Village and simply made handwritten notations to reflect 2004 replacement costs. (Supp ). The 2004 property record card indicated that only a cost approach was used to value Colonial Village. (Supp ). There is no market or income approach set forth on the 2004 Colonial Village property record card. (Supp ). Even if the mass appraisal company did perform a market or an income approach, the Auditor's valuation of Colonial Village for the tax year 2004 was still based on a cost approach. Mr. Westbrook testified that once the 2004 valuation of Colonial Village was determined by his mass appraisal company, it was disregarded by the Auditor. (Supp. 634). The 1998 valuation, which was based on the cost approach, was ultimately utilized by the Auditor to value Colonial Village for the 2004 tax year. Thus, the mass appraisal company's alleged use of a market or income approach is irrelevant, since neither approach was used in the valuation of Colonial Village for the tax year On pages 15 and 18 of their brief, the Appellees alleged that the BTA acknowledged that the Auditor did not use a cost approach to value the Colonial properties. This statement is incorrect. In its February 22, 2008 decision regarding Colonial Village for the tax year 2004, the BTA specifically noted that "the auditor makes the final valuation determination on all of the properties under consideration" and "in regard to the subject property, it was the auditor's decision to maintain the 1998 value." Thus, the BTA specifically acknowledged that the Auditor 16

21 valued Colonial Village for the tax year 2004 based on its 1998 valuation, which was based solely on a cost approach. Further, in its February 22, 2008 decisions regarding Colonial Terrace I and II, the BTA also found that "the auditor makes the final valuation determination on all of the properties under consideration." However, the BTA did not specify which valuation methodology was utilized by the Auditor to value Colonial Terrace I and II for the tax year The Appellees also alleged that the Auditor relied solely on the income approach to value Colonial Terrace I and II based upon Mr. Westbrook's testimony. However, the property record cards clearly contradicts Mr. Westbrook's testimony. The property record cards for Colonial Terrace I and II set forth separate cost and income approaches. (Supp , ). However, it is interesting to note that the depreciated costs of the buildings as indicated within the cost approaches set forth on the property record cards were identical to the Auditor's final valuations for the building improvements at Colonial Terrace I and II. Specifically, the cost approach set forth on the property record card for Colonial Terrace I indicated a building value of $979,940. (Supp. 326). The building value of $979,940 was the same value that the Auditor determined as the final value of the building improvements for Colonial Terrace I. (Supp. 323, 326). The cost approach set forth on the property record card for Colonial Terrace II indicated a building value of $1,090,930. (Supp. 475). The building value of $1,090,930 was the same value that the Auditor determined as the final value of the building improvements for Colonial Terrace II. (Supp. 468, 475). Further, the land values set forth in the cost approach for Colonial Terrace I and II were the same values that the Auditor determined as the final values of the land for Colonial Terrace I and II. (Supp. 320, 323, 464, 468). Since the building and land values as set forth in the cost approach were identical to the Auditor's final value of the building improvements and land for Colonial Terrace I and II, the cost approach must have been utilized. 17

22 On page 18 of their brief, the Appellees alleged that "for the 2004 reappraisal, the values were no longer reported in the cost approach format." It is unclear as to what the Appellees mean by "cost approach format." The Appellees have no basis for this statement. The Appellees allege that the 2004 property record cards were no longer reported in the "cost approach format," yet all of the 2004 property record cards set forth a cost approach valuation. (Supp , , ). On pages 18 and 19 of their brief, the Appellees incorrectly alleged that the 1998 property record cards were not used in the final valuation of any of the Colonial properties. However, this statement is inconsistent with Mr. Westbrook's testimony, Mr. Westbrook testified that the Auditor disregarded the mass appraisal company's valuation of Colonial Village for the tax year 2004 and relied on the Auditor's 1998 valuation of Colonial Village. (Supp. 634). Thus, the 1998 property record card was utilized to value Colonial Village for the 2004 tax year. The Appellees alleged that the 1998 property record cards were not utilized in the valuation of Colonial Terrace I and II for the tax year However, the mass appraisal company utilized the same 35% physical depreciation factor for the 2004 tax year that was utilized in the Auditor's 1998 valuations. (Supp , ). Even though the buildings were six years older, the mass appraisal company still utilized the same physical depreciation factor as utilized within the 1998 valuations of Colonial Terrace I and II. (Supp , ). Clearly, the 1998 property record cards were utilized by the mass appraisal company to value Colonial Terrace I and II for the 2004 tax year. The Appellees dedicated pages 15 through 19 of their brief to argue that the cost approach was not utilized to value the Colonial properties. The only evidence relied upon by the 18

23 Appellees was the testimony of Mr. Westbrook. Mr. Westbrook claimed that his mass appraisal company utilized all three approaches to value the Colonial properties. However, there is no evidence in the record to support Mr. Westbrook's testimony. The only evidence in the record which reflected the valuation of the Colonial properties were the property record cards. The property record cards for the Colonial properties specifically indicated that a cost approach was utilized. The values established by the cost approach on each property record card reflect the final values established by the Auditor. Although Mr. Westbrook testified that the cost approach was not used to value the Colonial properties, his testimony was clearly contradicted by the property record cards and therefore cannot be relied upon. On page 20 of their brief, the Appellees incorrectly alleged that it was a fundamental error to use only an income approach to value the Colonial properties. However, the Appellees have provided no legal authority to support this claim. This Court in Canton Towers, Alliance Towers, Oberlin Manor, and Colonial Village mandated the use of the income approach to value subsidized properties. The Appellees failed to address the Ohio case law regarding the valuation of subsidized apartments. On pages 21 and 22 of their brief, the Appellees alleged that there was no evidence to validate Mr. Snyder's projection of market rent within his 2004 appraisal reports. However, the Appellees overlooked the fact that Mr. Snyder utilized five (5) conventional apartment projects located in Marietta to estimate market rent for the Colonial properties. Mr. Snyder set forth a description of each rental comparable within his appraisal reports. (Supp , , ). Mr. Snyder indicated in his appraisal reports that he verified the rental rates of his comparables by holding discussions with apartment managers. (Supp. 277, 413, 577). Specifically, Mr. Snyder stated that "the monthly rents reflected in the comparables are reflective 19

24 of May 2005 rates; however, discussions with apartment managers revealed that rents have been generally stagnant over the past two years." (Supp. 277, 413, 577). Therefore, there was market support in the record regarding Mr. Snyder's projection of market rent for the Colonial properties for the tax year On page 23 of their brief, the Appellees attacked Mr. Snyder's estimate of reserves for the Colonial properties on the basis that there was no evidence to support his estimate. Based on his experience in appraising rental properties, Mr. Snyder estimated reserves to range from $200 per unit to $250 per unit. (Supp. 282, 418, 582). Based on his inspection of the Colonial properties, Mr. Snyder then concluded reserves to be $225 per unit, which is reasonable due to the "average" condition of the Colonial properties. (Supp. 224, 282, 359, 418, 522, 582). The Appellees overlooked the fact that Mr. Snyder, as an expert appraiser, holds the proper education and experience to make a per unit estimate of reserves. Thus, the BTA properly upheld Mr. Snyder' professional judgment in estimating reserves for the Colonial properties. On page 24 of their brief, the Appellees alleged that there was no evidence to support Mr. Snyder's 10% capitalization rate. This allegation is incorrect. Mr. Snyder determined his capitalization rate by utilizing three different methods: the extraction of capitalization rates from market sales, a band of investment (or mortgage equity method), and a debt coverage ratio analysis. (Supp , , , ). As a result, there was sufficient evidence to support Mr. Snyder's capitalization rate. Mr. Snyder utilized ten (10) apartment sales located in the region to extract capitalization rates. (Supp , , , ). Based on the ten (10) apartment sales, Mr. Snyder extracted capitalization rates in the range of 8.5% to 11.7%. (Supp. 150, 286, 422, 586). In his band of investment analysis, Mr. Snyder conducted a survey of local financial institutions 20

25 to determine available loan terms. (Supp , , , ). Based on his survey, Mr. Snyder concluded that the best financing available for the Colonial properties would be a 20 year loan for 80% of value at a rate of 7.5% with a five (5) year balloon, which reflected a capitalization rate of 9.75%. (Supp. 152, 288, 424, 588). In his debt coverage ratio analysis, Mr. Snyder reviewed the debt coverage ratios of Key Bank, Bank One, First National Bank, and United Bank. (Supp. 152, 288, 424, 588). Mr. Snyder also reviewed a national mortgage commitment survey compiled by the Appraisal Institute's research department for the fourth quarter of (Supp. 152, 288, 424, 588). Mr. Snyder debt's coverage ratio analysis indicated a capitalization rate of 9.3%. (Supp. 152, 288, 424, 588). Mr. Snyder utilized three different methods to calculate his capitalization rate, which was fully supported by market data. On page 24 of their brief, the Appellees incorrectly stated that there was no rational way for the BTA to utilize Mr. Snyder's 10% capitalization rate when his debt coverage ratio analysis indicated a capitalization rate of 9.3%. The Appellees overlooked the fact that Mr. Snyder's debt coverage ratio analysis was based on national statistics, which had to be adjusted for the local market. Further, the Appellees overlooked the fact that Mr. Snyder properly correlated his three methods to opine to a capitalization rate of 10%. Mr. Snyder stated in his appraisals that "with the debt coverage ratio being more of a lender driven capitalization technique used for loan purposes, the band of investment and direct capitalization techniques are given greater consideration." (Supp. 153, 289, 425, 589). The capitalization rates extracted from sales by Mr. Snyder indicated a range of 8.5% to 11.7%. (Supp. 150, 286, 422, 586). Mr. Snyder's band of investment analysis indicated a capitalization rate of 9.7%. (Supp. 152, 288, 424, 588). Thus, Mr. Snyder properly concluded to a 10% capitalization rate, which was well supported by his range of extracted capitalization rates and his band of investment analysis. (Supp. 152, 288, 424, 21

26 588). Therefore, the BTA properly upheld the Mr. Snyder's capitalization rate determination of 10%. APPELLANTS-CROSS APPELLEES' REPLY BRIEF On pages 26 and 32 of their brief, the Appellees incorrectly alleged that the Appellants cannot raise any issues regarding the valuation of Colonial Village for the tax year The Appellees' allegation is incorrect since the BTA's decision dated February 1, 2008 was a final appealable order, which was timely appealed by Colonial Village. On Apri121, 2006, the BTA issued a decision regarding the valuation of Colonial Village for the tax year This Court in Colonial Village Ltd. v. Washington Cty. Bd of Revision, 114 Ohio St.3d 493, 2007-Ohio-4641 reversed and remanded the BTA's decision dated Apri121, 2006 (regarding the valuation of Colonial Village for the tax year 2003) with instructions for the BTA to "independently weigh and evaluate all evidence properly before it in order to make an independent determination concerning the valuation of the property at issue." Id. at 501. On February 1, 2008, the BTA issued a decision regarding the valuation of Colonial Village for the tax year 2003 in accordance with this Court's holding in Colonial Village. The BTA's decision dated February 1, 2008 was a final appealable order of the BTA. On February 27, 2008, the Appellants filed a timely notice of appeal with this Court regarding the BTA decision February 1, (Appellants' Merit Brief, Appx. 1). Thus, the Appellants in their Notice of Appeal were permitted to set forth assignments of error regarding the February 1, 2008 BTA decision. The Appellees cited to DAK, PLL v. Franklin Cty. Bd. of Revision, 105 Ohio St.3d 84, 2005-Ohio-573, Citizens Financial Corp. v. Porterfeld (1971), 25 Ohio St.2d 53, 226 N.E.2d 828, and Throckmorton v. Hamilton Cty. Bd of Revision ( 1996), 75 Ohio St.3d 227, N.E.2d 1095 to allege that this Court does not sit as a super BTA, which will reweigh evidence on appeal. 22

27 The Appellant is not requesting the Supreme Court to be a super "BTA" in these appeals. The court's decisions in DAK, Citizen Financial Corp., and Throckmorton are factually and procedurally distinguishable from the subject appeals. In DAK, Citizen Financial Corp., and Throckmorton, this Court did not remand the decisions to the BTA with instructions for the BTA to render an independent valuations of the properties at issue. Further, the BTA in DAK., Citizen Financial Corp., and Throckmorton did not commit a legal error by making improper substitutions to the appraisal evidence at issue to "fashion" a final value conclusion. Unlike DAK, Citizen Financial Corp., and Throckmorton, this Court reversed and remanded the Colonial Village decision to the BTA with instructions for the BTA to render an independent valuation of Colonial Village. Further, the BTA in the subject appeals committed legal errors in making its independent valuation by making substitutions to Mr. Snyder's appraisal evidence to "fashion" final value conclusions for the Colonial properties. On page 28 of their brief, the Appellees allege that Mr. Snyder failed to include market data within his appraisal reports. The Appellees cite two cases to support their assertion. Rollman & Sons Co. v. Hamilton Cty. Bd of Revision (1955), 163 Ohio St. 363, 127 N.E.2d 1 and Meijer, Inc. v. Montgomery Cty. Bd of Revision, 75 Ohio St. 3d 181, 1996-Ohio In Rollman, the issue before this Court was whether there was proper support for an appraiser's estimation of functional obsolescence of a department store within the cost approach. This Court upheld the BTA's finding that the appraiser's estimation of functional obsolescence within the cost approach was unsupported by actual facts from the department store. Id. at 365. The subject appeals do not involve a cost approach valuation of a department store nor is there an issue regarding functional obsolescence. Rather, the subject appeals concern the valuation of subsidized apartment projects via an income approach valuation. Unlike Rollman, 23