Opinion
No. 107,653.
2012-12-14
In the Matter of the Equalization Appeal of YELLOW EQUIPMENT & TERMINALS, INC./ Yellow Transportation, Inc./YRC, Inc.
Appeal from Court of Tax Appeals. Linda Terrill, of Property Tax Law Group, LLC, of Leawood, for appellant YRC. Inc. Kathryn D. Myers, assistant county counselor, for appellee Board of County Commissioners of Johnson County.
Appeal from Court of Tax Appeals.
Linda Terrill, of Property Tax Law Group, LLC, of Leawood, for appellant YRC. Inc. Kathryn D. Myers, assistant county counselor, for appellee Board of County Commissioners of Johnson County.
Before PIERRON, P.J., MALONE, J. and BUKATY, SJ.
MEMORANDUM OPINION
PER CURIAM.
YRC, Inc., owns property in Johnson County, Kansas, that it uses as its corporate headquarters. YRC appealed the valuation of the property for ad valorem taxation purposes for tax years 2007 and 2008. The Court of Tax Appeals (COTA) held a hearing and found that the County's recommended values were appropriate and that the values were supported by substantial competent evidence. Further, COTA rejected the appraisals submitted by YRC and declined to adopt the valuation methodology advanced by YRC's witnesses. For the reasons set forth herein, we affirm COTA's judgment.
Factual and Procedural Background
In 2007, YRC's corporate headquarters was located at 10990 Roe Avenue, in Johnson County, Kansas. The property consisted of a 10–story office building of over 300,000 square feet, built in 1972, and a 21.5–acre site. YRC occupied most of the building, but there may have been a couple of other small tenants as well. For tax years 2007 and 2008, which are at issue here, the Johnson County Appraiser's Office (County) valued the property at $26,771,600 and $26,997,000, respectively. YRC appealed both valuations. The appeals were consolidated, and COTA held a hearing over both valuations on February 21–23, 2011. At the beginning of the hearing, YRC stated that the main issue was how to treat an owner-occupied building for valuation purposes, specifically whether an owner-occupied building required a lease-up discount to the valuation. A “lease-up discount” is essentially an amount subtracted from a property's value to compensate for the money and time required for a new buyer to lease the property to a stabilized occupancy rate similar to comparable properties in the market.
The County first presented the testimony of Kyle Blanz, a COTA specialist for the County. After hearing Blanz' qualifications, COTA ruled that Blanz was qualified to testify as a mass appraiser. Blanz had inspected the property in 2011, had reviewed the work of the field appraiser who performed the original valuations, and had performed independent research to review the challenged valuations. In addition, Blanz prepared and brought to the hearing computer-assisted mass appraisal (CAMA) reports with supporting documentation for the tax years in question. COTA admitted these reports into evidence. On cross-examination, Blanz testified that he believed the reports complied with the Uniform Standards of Professional Appraisal Practice (USPAP) Standard 6.
Blanz testified that the 2007 appraisal valued the fee simple interest of the property. There are three valuation methodologies used to calculate a property's value during an appraisal: the sales approach, the cost approach, and the income approach. For both tax years in question, Blanz testified that the County relied upon the income approach to value the property rather than the cost approach or the sales comparison approach. The sales comparison approach was not used because the County's mass appraisal valuation programs “do not include an automated sales comparison system for commercial properties approved by the Division of Property Valuation.” Although both the income approach and the cost approach were performed, the County relied upon the income approach over the cost approach because properties such as the subject property in Johnson County are “normally held and operated as income producing investment properties.” Additionally, because there was no evidence that a use other than the current use would be the highest and best use of the property and because YRC had not asserted a different highest and best use, the County determined that the current use as a single-tenant or owner-occupied office building was the highest and best use.
Blanz also reduced the rental rate on the below-grade office space; increased the rental rate for the above-grade office space; increased the allowance for expenses per square foot; increased the net leasable area on an architect's calculations; and lowered the investment class, which is “the perceived worth of the subject property to an investor” and determines the capitalization rate used in the income approach to valuation. Neither the original valuations nor Blanz' adjusted valuations applied a lease-up discount; instead of valuing the property as vacant and discounting the value to offset the cost of leasing, Blanz valued the property at 90% occupied. Ultimately, due to the changes noted above, Blanz recommended adjusting the valuations downward to $24,129,000 for tax year 2007 and $24,203,000 for tax year 2008. Blanz testified that, in his opinion, the County used accepted appraisal practice as adapted to mass appraisal and complied with all requirements under Kansas law for property valuation.
Bernie Shaner also testified for the County. YRC stipulated to Shaner's qualifications to testify as an appraisal expert and to the foundation of his report, with no conditions. The County appraiser hired Shaner to appraise the fee simple interest of the YRC property for tax year 2007. Shaner personally inspected the property in 2007, performed independent research, and compiled information from databases in order to complete his appraisal. Like the County, Shaner concluded that the highest and best use of the property was the existing use—a single-tenant office building. Shaner testified that in his opinion, his report complied with USPAP standards.
Shaner did not rely upon the cost approach to valuation; instead, he relied upon the income and sales comparison approaches. Although Shaner completed a cursory cost approach analysis, he testified that he only used the resulting figure for comparison purposes. Shaner gave detailed explanations of his analysis under the income and sales comparison approaches. Under the income approach, Shaner valued the property at $24,210,000; under the sales comparison approach, he valued the property at $26,700,000. Because he did not have “perfect data” for the property and because he recognized the strengths and weaknesses of each valuation method, Shaner settled on a value “pretty much in the middle”: $25,500,000.
Shaner also testified that he did not think it would be appropriate to appraise the fee simple value of the property by acting as if the property were vacant. Specifically, Shaner stated that he felt it would be inappropriate to apply a lease-up discount to an appraisal of a building that is occupied on the date of the appraisal where there is no indication that the occupation is not going to continue into the nature; here there was no indication that YRC's property would not remain owner-occupied. After Shaner's testimony, the County rested its case.
YRC first called Chris Williams, an appraiser and managing director for C.B. Richard Ellis, a company hired in 2008 by JP Morgan Chase Bank (Chase) to compile a portfolio of YRC's properties. The parties stipulated that Williams was qualified to testify as an expert on appraisal of the property in question and that his report would be admitted into evidence. Williams testified that Chase had directed him to appraise the property as though it were vacant; Chase asked what the value of the property would be if YRC were to move out and put the property up for sale. Williams also inspected the property; he considered all three valuation methodologies, but he relied most heavily upon the income approach.
Because he was valuing the property as if it were vacant, Williams factored in a lease-up discount, which, as stated above, considers the cost to a buyer to bring the vacant property to a stabilized occupancy. Williams determined that a buyer of the empty property would need approximately 24 months to find tenants to fill the space and would need to spend approximately $5 million in improvements and $1.6 million in leasing commissions in order to do so. The overall lease-up discount for this property as calculated by Williams was $15,480,000, which was subtracted from the valuation he arrived at through all three approaches. The final value under all three approaches, and therefore the value of the property according to Williams, was $16,200,000.
YRC also called David Lennhoff, president and owner of PGH Consulting, whom YRC hired to review Blanz' and Shaner's appraisals. After extensive testimony as to his qualifications, COTA ruled that Lennhoff was qualified to provide testimony reviewing the County's appraisals and principles underlying mass appraisal methodology. In addition, COTA ruled that Lennhoff was qualified to testify as to where he believed the County deviated from the USPAP. COTA also admitted into evidence Lennhoff's 2010 report in which he reviewed the County's appraisals.
In preparing his report, Lennhoff did not inspect the property; his review consisted only of reading the appraisal reports. Lennhoff testified that he reviewed the appraisals based on his knowledge of USPAP and without conducting any research on Kansas law regarding ad valorem taxation appraisals. The report stated, and Lennhoff testified, that the County's appraisals were inadequate for numerous reasons and did not meet the USPAP's minimum standards. Moreover, Lennhoff believed that Blanz' and Shaner's reports were too incomplete and insufficient to be considered credible. Lennhoff further contended that, because this was an individual appraisal as opposed to a mass appraisal, USPAP Standards 1 and 2 applied, rather than Standard 6. Finally, Lennhoff testified that in order to value a property in fee simple, an appraiser must value the property as if it is vacant and available to be leased at market rent—as Williams did—and therefore apply a lease-up discount. Lennhoff asserted that Shaner's and Blanz' failure to do so was a fatal flaw in their valuations.
COTA issued its order on January 11, 2012. First, COTA found that “the highest and best use of the subject property is its existing use as a single-tenant, or owner-occupied, office building.” COTA specifically stated that there was insufficient evidence to support a conclusion that a multi-tenant office building was the highest and best use of the subject property. Next, COTA addressed how a fee simple factors into the three valuation methodologies given the determined highest and best use of the property as a single-tenant or owner-occupied office building. In doing so, COTA necessarily considered YRC's assertion that the property should have been valued as if vacant and available to be leased. COTA found that Williams' application of a lease-up discount was inappropriate under all three approaches. Noting that the applicability of a lease-up discount depends to some extent on the purpose of the appraisal, COTA reiterated that the evidence in this case showed that the highest and best use was as an owner-occupied building and therefore a lease-up discount was inappropriate.
COTA also found that Blanz clearly communicated the factors supporting the County's valuation and made it clear that the scope of the valuation was a mass appraisal assignment based on data developed through CAMA. COTA held that Lennhoff's assertion that the report was not USPAP-compliant was undermined by his lack of familiarity with Kansas law controlling County appraisal reports for purposes of ad valorem taxation. COTA specifically held that “[a]lthough not perfect in terms of USPAP, the County's [CAMA] reports meet minimum standards of reliability under Kansas law for purposes of ad valorem taxation.”
In addition, COTA found that the sales comparison approach was likely to provide the most reliable estimate of value for purposes of ad valorem taxation of the property in fee simple. Although Blanz' appraisals did not utilize the sales comparison approach, Shaner's 2007 appraisal did, giving a market value of $26,700,000. Williams' 2008 appraisal also employed the sales comparison approach, reaching a pre-lease-up-discount value of $31,700,000. After considering all the appraisals and their respective flaws, COTA concluded that the County's recommended values of $24,129,000 for tax year 2007 and $24,203,000 for tax year 2008 were most appropriate and supported by substantial competent evidence. COTA adopted those values.
On January 27, 2012, YRC filed its petition for reconsideration. Specifically, YRC asked COTA to reconsider (1) its conclusion on the highest and best use of the property and how that conclusion affects the various valuation methodologies, (2) its conclusion on the USPAP Standards applicable to Blanz' report and Blanz' compliance with USPAP, and (3) its conclusion that the sales comparison approach was the preferred approach for the property and the propriety of COTA ultimately adopting the County's value even though the County did not conduct the sales comparison method of valuation. After the County responded, COTA denied the petition for reconsideration, finding that YRC offered no new evidence or argument to grant reconsideration. YRC timely filed a petition for judicial review with this court.
Highest and Best Use
COTA held that the highest and best use of the property was its existing use as a “single-tenant, or owner-occupied, office building.” YRC argues that COTA erred in finding that the County concluded that the highest and best use of the property was the current use and subsequently agreeing with that conclusion. YRC contends that the County completely failed to conduct a highest and best use analysis. The County disagrees, asserting that this argument has been previously unsuccessfully raised to the court and that under Kansas law, the County complied with USPAP standards in its determination of the highest and best use of the property.
The Kansas Judicial Review Act (KJRA) defines the scope of judicial review of state agency actions unless the agency is specifically exempted from application of the statute. K.S.A.2011 Supp. 77–603(a); Cochran v. Kansas Dept. of Agriculture, 291 Kan. 898, 906, 249 P.3d 434 (2011). COTA orders are subject to KJRA review. K.S.A.2011 Supp. 74–2426(c). On appeal, the burden of proving the invalidity of the agency action rests on the party asserting such invalidity. K.S.A.2011 Supp. 77–621(a)(1). Relevant to this issue, this court may grant relief to the challenging party if that party proves that COTA's action is based upon a determination of fact, made or implied by COTA, that is not supported by evidence that is substantial when viewed in light of the record as a whole. See K.S.A.2011 Supp. 77–621(c)(7). For purposes of this court's review on this issue,
“ ‘in light of the record as a whole’ means that the adequacy of the evidence in the record before the court to support a particular finding of fact shall be judged in light of all the relevant evidence in the record cited by any party that detracts from such finding as well as all of the relevant evidence in the record ... cited by any party that supports such finding, including any determinations of veracity by the presiding officer who personally observed the demeanor of the witness and the agency's explanation of why the relevant evidence in the record supports its material findings of fact. In reviewing the evidence in light of the record as a whole, the court shall not reweigh the evidence or engage in de novo review.” K.S.A.2011 Supp. 77–621(d); Redd v. Kansas Truck Center, 291 Kan. 176, 183, 239 P.3d 66 (2010).
Additionally, several Kansas statutes guide the calculation of property taxes. K.S.A. 79–501 mandates that each parcel of real property shall be appraised at fair market value, which K.S.A.2011 Supp. 79–503a defines as “the amount in terms of money that a well informed buyer is justified in paying and a well informed seller is justified in accepting for property in an open and competitive market, assuming that the parties are acting without undue compulsion.” Specifically relevant to this issue, K.S.A. 79–505(a) authorizes the director of property valuation (PVD) to “adopt rules and regulations or appraiser directives prescribing appropriate standards for the performance of appraisals in connection with ad valorem taxation in this state.” Pursuant to this authority, the PVD issued Directive No. 92–006 in 1992, requiring County appraisers to “perform all appraisal functions in conformity with the [USPAP] Sections 2 and 6....” In addition, K.S.A. 79–505(a)(l) and K.S.A. 79–506(a) require that Kansas appraisal practice be performed in accordance with the USPAP as adopted in 1992. USPAP Standard 2–2(k) requires an appraiser to show compliance with the requirements of Standard 1; Standard l–3(b) requires an appraiser developing a real property appraisal to “recognize that land is appraised as though vacant and available for development to its highest and best use.” (Emphasis added.) USPAP, p. 11, 17 (1992).
Moreover, Standard 6–2(h) requires an appraiser who is developing a mass appraisal to “consider the effect on use and value of the following factors: ... the highest and best use of the property....” USPAP, p. 31 (1992). Therefore, determining the highest and best use is required in a Kansas appraisal. Highest and best use has been defined as: “The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value.” The Appraisal of Real Estate, 277–78 (13th ed.2008).
As stated above, YRC takes issue with COTA's statement that the County “concluded” that the highest and best use of the property was the current use. YRC argues that the County merely “assumed” that the current use was the highest and best use and did not conduct any inquiry into the best and highest use; therefore, according to YRC, COTA's statement that “[t]he county documents also included an analysis of highest and best use concluding that the current use is considered the highest and best use” is without any factual basis. YRC argues that because the statement is devoid of any factual basis, it cannot be supported by substantial evidence in light of the record as a whole, and accordingly this court should reverse COTA's holding. See K.S.A.2011 Supp. 77–621(c)(7).
Initially, however, it is important to note that YRC appears to misconstrue COTA's actual statement. Although YRC represents COTA's finding as stated above, COTA's order stated, regarding highest and best use:
“The county concluded that the current use is considered the highest and best use as it meets the definition for highest and best use and Taxpayer has not asserted that the current use is not the property's highest and best use. Shaner concluded that the existing use as a single-tenant office building was the highest and best use. Williams concluded that the highest and best use of the property is consistent with the existing use, as an office development.” (Emphasis added.)
Taken in context, COTA's use of the word “concluded” does not, as YRC contends, imply that the County undertook extensive inquiry into the highest and best use. The end of the sentence clearly states that the County so concluded because the property “meets the definition for highest and best use and [YRC] has not asserted that the current use is not the property's highest and best use.”
At the hearing, Blanz testified:
“The county does not do a highest and best use analysis because it would be cost-prohibitive in mass appraisal. Highest and best use would be analyzed if the taxpayer alleges a different highest and best use. Otherwise, unless there's an indication within a market area that a transition in—in use is occurring within a neighborhood, the highest and best use is considered to be its continuing use.
“In this particular case, the owner has not disputed that the highest and best use is the continued use as an office building.”
Moreover, the CAMA reports contain a section on highest and best use, which defines “ ‘highest and best use [as] the reasonably probable and legal use of vacant land or an improved property that is physically possible, legally permissible, appropriately supported, financially feasible, and that results in the highest value.’ [Citation omitted.]” The section goes on to explain that while the highest and best use may change, if there is no evidence of such a change, “the current use is considered the highest and best use as limited resources prohibit a detailed highest and best use analysis....” YRC also claims that COTA “continue[d] the myth” of a County analysis of highest and best use when it stated that “[t]he county documents also included an analysis of highest and best use concluding that the current use is considered the highest and best use as it meets the definition for highest and best use and Taxpayer has not asserted that the current use is not the property's highest and best use.” YRC alleges that in making this statement, COTA was blatantly creating evidence; YRC states that “[t]he testimony was that the county did nothing.”
YRC's allegations are unfounded. Although Blanz testified that the County does not undertake a traditional highest and best use analysis, he explained that the County considers a property's existing use the highest and best use unless a taxpayer alleges a different highest and best use. COTA's accurate statements regarding the County's avenue to its conclusion on highest and best use are supported by the substantial evidence of Blanz' testimony and the information contained in the CAMA reports. The testimony and documents possess both relevance and substance and provide a substantial basis of fact from which the issues of whether the County performed a highest and best use analysis can be reasonably determined; therefore, they constitute substantial competent evidence such as is needed to support a factual finding of COTA. See Frick Farm Properties v. Kansas Dept. of Agriculture, 289 Kan. 690, 709, 216 P.3d 170 (2009).
In any event, this court has previously held that testimony nearly identical to Blanz' regarding a property's highest and best use was sufficient to support a conclusion on highest and best use and to conform to the applicable USPAP standards. See In re Equalization Appeal of Johnson County Appraiser/Privitera Realty Holdings, 47 Kan.App.2d 1074, 1091, 283 P.3d 823 (2012) (hereinafter referred to as Privitera ); In re Tax Appeal of Yellow Freight System, Inc., 36 Kan.App.2d 210, 217–19, 137 P.3d 1051, rev. denied 282 Kan. 790 (2006).
In summary, COTA's finding that the highest and best use of the subject property was its continuing use as a single tenant or owner-occupied office building was supported by substantial competent evidence. YRC's arguments to the contrary are without merit.
Lease–Up Discount
The major contention between the two parties at the hearing was whether the appraisers were required to value the property as vacant and available to be leased in order to correctly value it in fee simple. YRC argues in the affirmative, based primarily on Lennhoff's testimony. Willams, who testified for YRC, appraised the property as if it were vacant and available to be leased and applied a lease-up discount to account for costs and time required to accomplish a stabilized occupancy rate of tenancy. YRC contends that this was the proper way to appraise the property in fee simple.
The County, however, argues that Kansas law does not support YRC's position and, in fact, that this court previously has implied that ad valorem valuation seeks a value that assumes a normalized level of occupancy at market rent, not 100% vacancy and availability to be leased. Moreover, the County points to statutes to support its assertion that the County should consider the property as occupied. Finally, the County turns to cases from other jurisdictions to support its argument.
K.S.A.2011 Supp. 77–621(c)(4) authorizes this court to grant relief to YRC if YRC sustains its burden to prove COTA's order was invalid because COTA erroneously interpreted or applied the law. On appeal, the burden of proving the invalidity of agency action rests on YRC. See K.S.A.2011 Supp. 77–621(a)(l). Moreover, to the extent that this appeal requires interpretation of tax statutes, this court exercises unlimited review. In re Tax Appeal of Graceland College Center, 40 Kan.App.2d 665, 668, 195 P.3d 245 (2008), rev. denied 289 Kan. 1278 (2009). Previously, Kansas courts generally gave substantial deference to an administrative agency's interpretation of a statute that the agency administers, especially when the agency was one of special competence and experience. See Coma Corporation v. Kansas Dept. of Labor, 283 Kan. 625, 629, 154 P.3d 1080 (2007). The Kansas Supreme Court, however, no longer extends deference to an agency's statutory interpretation. In re Tax Appeal of LaFarge Midwest, 293 Kan. 1039, 1044,271 P.3d 732 (2012).
In its order, after determining that the highest and best use of the property was its current use as a single-tenant or owner-occupied office building, COTA reviewed the general applicability of a lease-up discount in the three valuation methodologies. COTA then stated:
“Arguably, ‘[i]n appraising the value of a fee simple interest in a newly completed, 100% owner-occupied property, it may be appropriate to make a deduction in the forecast time for the market to achieve 100% use and occupancy of the building. (This is analogous to the lease-up time needed to achieve stabilized occupancy in tenanted properties.)’ [Citation omitted.] However, we find that one must be mindful of the purpose of the appraisal or the appraisal assignment. Appraisals are a complex endeavor and are used for many different purposes. Williams was making his appraisal under the extraordinary assumption that the property was vacant pursuant to the instruction of his client, JP Morgan Chase Bank. He did not conclude by independent analysis that the highest and best use of the subject property was as an income-producing property. In this case, for purposes of ad valorem taxation, in order for a lease-up deduction to be most appropriate in the income approach, one must first conclude that the highest and best use of the property is a tenanted property. We have already found that there is insufficient evidence to support such a conclusion with respect to the subject property.
“This Court understands that it may be proper appraisal practice to include a lease-up discount in addition to a stabilized vacancy allowance in cases where the property is experiencing a below stabilized vacancy position. This is not such a case, however, as the evidence here indicates the subject property's highest and best use is its actual use as a fully owner-occupied facility. Applying a lease-up discount in this tax appeal would require a suspension of reality and an acceptance of conditions not borne out by the evidence. While Williams appropriately applied a lease-up discount in the income approach in appraising this fully occupied property based upon extraordinary assumptions and hypothetical conditions prescribed by his client, Chase Bank, no such extraordinary assumptions or hypothetical conditions are called for under Kansas property tax law.” (Emphasis added.)
In order for a lease-up discount to be a viable part of an appraisal, the highest and best use of a property must involve leasing. Because a lease-up discount calculates the expense to a new owner to bring the property from vacant to a stabilized occupancy rate by leasing to new tenants, it obviously does not apply to a property for which the highest and best use would not involve leasing to tenants at all. COTA found that the highest and best use of this property was as an owner-occupied facility. An owner-occupied facility does not involve leasing and therefore does not implicate a lease-up discount. COTA correctly recognized this fact in the language quoted above. Because YRC has not successfully challenged COTA's finding that the highest and best use of the property is as an owner-occupied office building and because COTA correctly found that a lease-up discount is not applicable in such a situation, we affirm COTA's findings on this issue.
USPAP Standards
YRC also challenges COTA's finding that, under Kansas law, USPAP Standard 6 applies to this appraisal, rather than Standards 1 and 2, as YRC argued. YRC argues that the weight of authority, primarily in the form of USPAP advisory opinions and a published article written by a member of the International Association of Assessing Officers, supports its position. YRC concedes that this court has previously rejected this argument but contends that this court nevertheless should find that Standards 1 and 2 should apply. The County, on the other hand, argues that previous panels of this court have correctly held that the County is not required to comply with USPAP Standards 1 and 2 merely because a property valuation is appealed; compliance with Standard 6 is sufficient. The County rests on this prior caselaw and notes that YRC's counsel also represented the taxpayers in those cases who unsuccessfully raised this same argument.
As stated above, the KJRA defines the scope of judicial review of state agency actions unless the agency is specifically exempted from application of the statute. K.S.A.2011 Supp. 77–603(a); Cochran, 291 Kan. at 906. COTA orders are subject to KJRA review. K.S.A.2011 Supp. 74–2426(c). The burden of proving the invalidity of agency action rests on the party asserting such invalidity. K.S.A.2011 Supp. 77–621(a)(l).
As explained above, pursuant to the authority vested by K.S.A. 79–505(a), the PVD issued a directive that required County appraisers to “perform all appraisal functions in conformity with the [USPAP] Sections 2 and 6....” In addition, K.S.A. 79–505(a)(1) and K.S.A. 79–506(a) require that Kansas appraisal practice be performed in accordance with the USPAP as adopted in 1992. Regarding the USPAP Standards at issue here, Standard 1 addresses the development of a single-property appraisal; Standard 2 addresses the form and content of an appraisal report for a single-property appraisal; and Standard 6 governs the performance and reporting of a mass appraisal, which is “the process of valuing a universe of properties as of a given date utilizing standard methodology, employing common data, and allowing for statistical testing.” See USPAP, p. 8–13, 15–17, 29–35 (1992). The 1992 USPAP contained the comment that “[m]ass appraisals are used primarily for purposes of ad valorem taxation” and that they are “prepared with or without computer assistance and are often developed by teams of people.” USPAP, p. 29 (1992).
Our courts have repeatedly interpreted K.S.A. 79–504(b) as establishing that appraisals produced by the CAMA system, which the director of property valuation has previously approved, shall be deemed written appraisals that fulfill the statutory requirements. See Privitera, 47 Kan.App.2d at 1087;In re Tax Appeal of Yellow Freight System, Inc., 36 Kan.App.2d 210, Syl. ¶ 5. Finally, the USPAP provides for departures from its mandates, permitting “limited exceptions to sections ... that are classified as specific guidelines rather than binding requirements” and stating a jurisdiction exception rule that states: “If any part of these standards is contrary to the law or public policy of any jurisdiction, only that part shall be void and of no force or effect in that jurisdiction.” USPAP, p. 5–6(1992).
Most recently, in Privitera, argued by YRC's counsel on behalf of Privitera Realty Holdings, Privitera challenged the valuation of a fast-food restaurant in Johnson County, Kansas. The County valued the property at $1,774,450, and Privitera appealed to a hearing officer, who reduced the assessment to Privitera's recommended value of $1,393,200. The County appealed to COTA. At the hearing, among other testimony, Linda Clark testified. Clark, an employee of the county appraiser's office, was responsible for reviewing the original assessment of the property in preparation for the appeal. Much like Blanz did here, Clark reviewed the work of the original assessor, personally inspected the restaurant, and performed some independent research. At the hearing, Clark submitted a report including the CAMA documents and explained the appraisal procedure that had been utilized, including the cost approach and income approach. Like Blanz, Clark did not perform a sales comparison approach because “the County does not have a sales-comparison approach for mass appraisals that is PVD approved.” 47 Kan.App.2d at 1080. Ultimately, Clark testified that she felt the cost approach was the most appropriate.
When questioned about the applicable USPAP Standards, Clark stated that she believed USPAP Standard 6 applied and that her report complied with Standard 6's requirements. “Notably, Clark said that when an assessment to an individual property is challenged, she must provide information specifically relating to the property so it can be determined whether the value assigned to the property—through the use of a mass appraisal system—was reasonable.” 47 Kan.App.2d at 1080–81. COTA found in favor of the County, holding, in language almost identical in parts to that used here:
“ ‘[T]he County's presentation—including its CAMA-generated mass appraisal report, supplemental documents, and testimony from a competent valuation expert—provides substantial competent evidential support for its original 2008 valuation. The Court also finds that the County's evidence, though far from perfect, meets minimum standards of reliability under Kansas law. Nothing in the record suggests that the County's value is premised on an appraisal approach expressly prohibited by USPAP. Nor is there any evidence of USPAP deviations that could be construed as materially detrimental to the County's overall opinion of value.” 47 Kan.App.2d at 1081.
Accordingly, COTA reinstated the County's original valuation and, after COTA denied its petition for reconsideration, Privitera petitioned this court for judicial review, alleging, among other things, that Clark's report was invalid because it did not comply with USPAP Standards 1 and 2. 47 Kan.App.2d at 1080–81, 1087–88. As the County notes, the argument by Privitera regarding Clark's report is nearly identical to the argument YRC now makes to this court regarding Blanz' report, even relying on the same USPAP Advisory Opinion. The Privitera court, after reiterating the scope of coverage of USPAP Standards 1, 2, and 6, noted:
“In a May 1996 letter to the Douglas County Appraiser (quoted in Att'y Gen. Op. No. 96–71), the PVD explained the application of Standards 2 and 6 in connection with appraisals completed for ad valorem tax purposes:
“ ‘ “USPAP Standard 6 covers mass appraisals. Generally speaking this is the standard that the County appraiser is required to adhere to in doing appraisals for ad valorem tax purposes. USPAP Standard 2, however, covers ‘single property appraisals.’ ‘Single property appraisals' include those appraisals used to value special purpose properties that do not lend themselves to mass appraisal techniques.
“ ‘ “USPAP Standard 6 also applies to those properties that have been initially valued through mass appraisal techniques, but whose values have been reexamined as a result of the hearing and appeals process.
“ ‘ “It has never been the Division's intention to require the County appraiser to meet both USPAP Standard 2 and 6 on each and every appraisal conducted for ad valorem tax purposes. Either USPAP Standard 6 is applicable (mass appraisals), or USPAP Standard 2 is applicable (single property appraisals), but not both.’ “ [Citation omitted.]” 47 Kan.App.2d at 1088–89.
Additionally, YRC cites to an article by Kenneth Joyner that explores and analyzes Advisory Opinion 32 from the 2008–2009 edition of the USPAP. The Privitera court was not persuaded by this argument, stating:
“[T]here is no evidence that Clark utilized any individual site-specific data in compiling her report that was not utilized in the initial mass appraisal process. In evaluating the reasonableness of a $1,778,660 value for the [restaurant], the record reflects that Clark reviewed the previous work done in making the initial assessment, personally inspected the property to confirm the accuracy of the data used in the initial assessment (and corrected an error in square footage as a result), and verified the factual basis supporting the $16 per-square-foot value to the land used in the initial assessment.
“In addition to the report from the CAMA system ..., Clark looked at 2008 values assessed by the County for numerous fast-food restaurants and determined that the value assigned to the [subject restaurant] was within the range of these values. Of course, this type of inquiry is entirely consistent with a mass appraisal approach to assessment. Although the record also reflects that Clark performed an income approach to estimate the [restaurant's] value, she utilized the County's mass appraisal CAMA system for the data regarding the universe of restaurant rental, expense, and capitalization rates in 2008.
“Simply put, there is no evidence to suggest that Clark performed a complete, a partial, or a supplemental appraisal for the property at issue here. When a mass appraisal assessment to an individual property is challenged, the County must provide information specifically relating to the property in order to determine whether the value assigned to the property—through the use of a mass appraisal system—was reasonable. Providing such information does not automatically transform a mass appraisal, which must conform to Standard 6, to an individual appraisal, which must conform to Standards 1 and 2.” 47 Kan.App.2d at 1089–90.
Likewise, here, Blanz testified that his recommendation for reduction in value based upon the income approach “must be within the already-established mass appraisal market parameters for other similar property types unless it's established that there's something unique to the property that would prevent it from operating within those parameters.” As Clark did in Privitera, Blanz reviewed the original valuation by reviewing the work performed in that assessment, visiting and inspecting the property to confirm the accuracy of the data used in that work (and correcting errors where necessary), and verifying the factual basis supporting the values used in the initial assessment. We conclude that the rationale of the Privitera court is sound and should be followed in this case. Accordingly we find that the appeal of a mass appraisal assessment to an individual property does not automatically transform the mass appraisal into an individual appraisal, thereby requiring it to conform to USPAP Standards 1 and 2 rather than Standard 6.
Finally, YRC argues that even if USPAP Standard 6 is applicable, Blanz' report did not meet USPAP requirements. YRC contends that Blanz was not competent to appraise the property, that COTA improperly used Shaner's report to “prop up” Blanz' report, that both Blanz' and Shaner's appraisals failed to correctly value the property in fee simple, and that Blanz failed to meet the requirements of USPAP Standard 6. However, we need not examine these arguments because YRC failed to raise these issues in its petition for reconsideration to COTA. This court has previously stated:
“K.S.A.2010 Supp. 74–2426(b) provides that the filing of a petition for reconsideration, in accordance with the provisions of K .S.A.2010 Supp. 77–529, is a prerequisite to seeking judicial review of a decision by COTA. Pursuant to K.S.A.2010 Supp. 77–529(a), a petition for reconsideration should state ‘the specific grounds upon which relief is requested.’ When a party fails to raise a specific ground for relief in the petition for reconsideration, that argument is not properly preserved for judicial review. In fact, in Kansas Industrial Consumers v. Kansas Corporation Comm'n, 30 Kan.App.2d 332, ¶ 4, 42 P.3d 110 (2002), a panel of this court held that ‘[a]n issue not presented to the Kansas Corporation Commission in a petition for reconsideration cannot be decided on appeal.’ The panel in Kansas Industrial Consumers explained that issues not included in the petition for reconsideration cannot be raised injudicial review proceedings. [Citation omitted.] In rendering its decision, the panel relied upon K.S.A. 66–118b, which states that a party challenging an order from the Kansas Corporation Commission may not rely upon a ground not set forth in the petition for reconsideration, and the requirement in K.S.A. 77–529(a) that a party seeking reconsideration state ‘the specific grounds upon which relief is requested.’ [Citation omitted.] The panel explained:
“ ‘The purpose of requiring that all issues be included in the petition for reconsideration is to inform the KCC and other parties where mistakes of law and fact were made in the order. [Citations omitted.] Requiring a petition for reconsideration permits the KCC to correct errors which are called to its attention and thereby perhaps avoid judicial review. [Citation omitted.]’ [Citation omitted.]
“Although K.S.A.2010 Supp. 74–2426(b) does not contain a provision similar to K.S.A. 66–118b that specifically addresses the requirement to specify grounds for relief in a petition for reconsideration, we hold that same prohibition applies in cases involving COTA due to the language in K.S.A.2010 Supp. 77–529(a) and the policy reasons set forth in Kansas Industrial Consumers.” (Emphasis added.) In re Tax Exemption Application of Strother Field Airport, 46 Kan.App.2d 316, 320–21, 263 P.3d 182 (2011).
See also In re Equalization Appeal of Prieb Properties, 47 Kan.App.2d 122, 126, 275 P.3d 56 (2012) (citing Strother Field Airport and stating that where a general statement but not a specific argument was raised in the petition for reconsideration to COTA, the issues were not properly before this court).
Because YRC failed to specifically address the issues about compliance with USPAP Standard 6 in the petition for reconsideration, the issues are not properly before this court for review. We conclude that YRC's remaining challenges to COTA's order are without merit and that COTA did not err in valuing the real property in question.
Affirmed.