Appeal from the Iowa District Court for Polk County, Karen A. Romano, Judge.
The opinion of the court was delivered by: Tabor, J.
Homemakers Plaza, Inc. appeals the $21,300,000 valuation of its property for the 2010 property tax assessment. AFFIRMED.
Heard by Potterfield, P.J., and Danilson and Tabor, JJ.
The taxpayer, a large furniture retailer, contests the district court's valuation of its property at $21,300,000. The retail business occupies roughly 215,000 square feet of showroom and 200,000 square feet of warehouse space situated on a triangular lot in suburban Polk County. The taxpayer claims the 2010 assessed value should be no greater than $11,100,000 based on the viewpoint of its appraisers that the "highest and best use" of the property, if sold, would be for industrial purposes.
The district court rejected those appraisals because they did not consider the value of the property as a going concern as required by Iowa Supreme Court precedent. The district court instead adopted the conclusions of an appraiser for the county board of review who considered the ongoing use of the property as a profitable enterprise, without adding special value exclusive to the present owner. Because the district court's valuation is consistent with Iowa law and supported by persuasive evidence, we affirm.
I. Background Facts and Proceedings
The Merschman family opened the business known as Homemakers Plaza, Inc. in 1974 on the east side of Des Moines. The furniture retailer began in a 26,000 square foot building at 5035 Hubbell Avenue. Homemakers expanded that building in 1978 and again in 1982.
Then in 1984, the Merschman family purchased a 17.02-acre triangular lot at 10215 Douglas Avenue in Urbandale. The family fashioned the existing 133,000 square foot building into a furniture store, which opened in spring 1985.
Homemakers originally used 60,000 square feet of the building as showroom space and 73,000 square feet as a warehouse. In 1993, the business converted the entire building to showroom space and rented an adjacent facility from Pepsi Corporation to use as its warehouse. In 1998, Homemakers increased the showroom floor to 170,000 square feet and built a 109,000 square foot adjoining warehouse on the property before discontinuing its use of the Pepsi building.
In June 2007, Homemakers broke ground on a two-year expansion project that increased the store to 415,000 square feet-215,000 of which is showroom floor, and the remaining 200,000 is used for warehouse and office space. The Douglas Avenue store remained open throughout the $26,000,000 renovation. Upon completing construction on the new store, Homemakers closed the Hubbell location and attempted to sell the property. Despite two reductions in its listing price, the original property remains on the market.
Homemakers purchased from Pepsi the vacant lot adjacent to its Douglas Avenue property, where employees occasionally park their cars. The store planned to expand its warehouse in spring 2012 and build a lighted parking lot on the adjacent lot. According to owner David Merschman, the property is generating a return on the investment in the expansion and renovation. The Douglas Avenue site works well for Homemakers and he expects the business to remain at that location as long as it is profitable.
In 2010, the Polk County Assessor determined the property's value to be $26,620,000. Homemakers petitioned the Polk County Board of Review, arguing the property was assessed for more than the amount authorized by law.
Homemakers claimed the property should be valued at $8,600,000. After the board affirmed the assessment, Homemakers appealed to the district court. The court held a three-day trial, during which it heard testimony from Homemakers president David Merschman; Paul Dekker, the director of community development for the City of Urbandale; and Randy Ripperger, Polk County's chief deputy assessor. Dekker testified that the city is encouraging commercial development along Douglas Avenue.
The court also took evidence from four appraisers: Thomas Slack and Kenneth Riggs for Homemakers, and Kyran Cook and Russell Manternach for the board. All four appraisers are members of the Appraisal Institute (MAI) and are MAI certified. Each conducted his assessment pursuant to the Uniform Standards of Professional Appraisal Practices (USPAP), which require an appraisal begin by determining the highest and best use for the property. The appraisers defined the phrase "highest and best use" by reference to the following criteria: what is legally permissible, what is physically possible, what is financially feasible, and what ensures maximum profitability. From there the appraisers looked to three traditional approaches to find the property's value: cost, comparable sales, and income capitalization.
The cost approach involves an analysis of the property's physical value, estimated as the current market value of the land, assumed to be vacant, plus the cost of improvements adjusted for depreciation and obsolescence factors. Functional obsolescence relates to value perceived by only the owner and not a future purchaser, and external obsolescence refers to the property's physical wear. The comparable sales approach contemplates sales similar to the subject property, with adjustments to compensate for differences between the two. The income capitalization approach determines value based on the property's capacity to generate income.
The appraisers reconciled the three approaches for their final assessment. Each appraiser's classification, value per approach, and final appraisal are shown below:
Highest Comparable Income Final Appraiser and Best Cost Sales Capitalization Appraisal
Thomas Industrial $8,890,000 $9,050,000 $8,890,000 $9,050,000 Slack
Kenneth Industrial $11,400,000 $10,900,000 $11,100,000 $11,100,000 Riggs
Kyran Cook Present Use $19,600,000 $19,700,000 Not Assessed $19,700,000 Russell Retail $22,000,000 $20,400,000 $21,400,000 ...