Rider Hotel, LLC v. City of Milwaukee, a Mun. Corp.

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Rider Hotel, LLC, A Domestic Limited Liability Company, Plaintiff-Appellant, v. City of Milwaukee, a Municipal Corporation, Defendant-Respondent.

No. 2022AP1141

Court of Appeals of Wisconsin, District I

June 11, 2024

This opinion will not be published. See WIS. STAT. RULE 809.23(1)(b)5. (2021-22).

APPEAL from a judgment of the circuit court for Milwaukee County No 2018CV5246: CARL ASHLEY, Judge.

Before Donald, P.J., Geenen and Colon, JJ.

Per curiam opinions may not be cited in any court of this state as precedent or authority, except for the limited purposes specified in WIS. STAT. RULE 809.23(3).

PER CURIAM.

¶1 Rider Hotel, LLC ("Rider"), owner of the Iron Horse Hotel in Milwaukee ("Property" or "Iron Horse"), appeals from a judgment of the circuit court dismissing its claims for partial property tax refunds under WIS. STAT. § 74.37(3)(d) (2017-18),^[1] arguing that the City of Milwaukee's ("City") 2017 and 2018 assessments of the Property were excessive in violation of WIS. Stat. § 70.32(1). Specifically, Rider argues that the City's assessments upon which the circuit court relied failed to follow the Markarian hierarchy,^[2]unlawfully averaged the Property's historical work-up values to calculate the Property's fair market value, and failed to account for "multiple significant factors" affecting the Property's fair market value. We reject Rider's arguments and affirm.

BACKGROUND^[[3]]

¶2 Rider brought this action against the City under WIS. STAT § 74.37(3)(d), claiming that it was entitled to partial property tax refunds because the City's 2017 and 2018 assessments of the Property were excessive in violation of Wis.Stat. § 70.32(1).^[4]

¶3 The circuit court conducted a bench trial from May 24 to May 26, 2021, during which the parties each presented evidence regarding the Property's fair market value, including the testimony and appraisal reports of their respective expert witnesses: Duane Debelak as Rider's appraiser, and James Wiegand as the City's assessor.

¶4 Debelak performed a tier two "sales comparison approach" to calculate the Property's fair market value.^[5] Debelak identified six properties that he claimed were reasonably comparable to the Iron Horse, but he had to make large adjustments in order to bring those properties in line with the Iron Horse. Four of the six properties reflected a net adjustment between 35% and 40% while another property reflected a 70% net adjustment, and Debelak admitted that "the higher the percentage of adjustment, the less similarity" between the subject property and the comparative property. The Iron Horse has a full-service restaurant that comprised approximately 40% of its total revenue. However, only one of the proposed comparable properties had a full-service restaurant like the Iron Horse, while another had a bar/lounge with no onsite kitchen; the remaining four had no restaurant, bar, or lounge. Additionally, while the Iron Horse is categorized as an "upper upscale" hotel, only one of the six comparable properties was identified by Debelak as sharing that category.

¶5 Wiegand considered a tier two sales comparison approach, but determined that there were no recent arm's-length sales of reasonably comparable properties.^[6] Quoting the Wisconsin Property Assessment Manual ("WPAM"), Wiegand said that it is extraordinarily difficult to perform an accurate sales comparison approach to hotel properties "because individual properties may differ greatly in services, reputation, age, and location all of which can affect value." Wiegand also cited a textbook by Stephen Rushmore related to the valuation of hotel properties, and testified that Rushmore's method of hotel valuation is employed by the City. In determining whether other hotel properties were reasonably comparable to the Iron Horse, Wiegand consulted a rank-ordered list of factors from Rushmore. Wiegand analyzed Debelak's six proposed comparable properties in light of those factors and determined that they were too dissimilar in "location, construction, physical condition, layout, equipment, size, services, and amenities" to support a tier two sales comparison analysis.

¶6 Instead, Wiegand conducted a tier three income approach. He reviewed the income and expense data provided by Rider for the period from January 1, 2014 to December 31, 2017, in comparison with market data. Wiegand created four individual "work-up" values for 2015-2018, one for each year, based on the prior year's operating data, then averaged those work-up values to reach an opinion of the Property's fair market value as of the assessment date. That is, the work-up value for 2015 was based on 2014 operating data, the work-up value for 2016 was based on 2015 operating data, etc. Wiegand averaged the work-up values for 2015, 2016, and 2017 to reach an opinion of the Property's fair market value as of January 1, 2017. He averaged the work-up values for 2016, 2017, and 2018 to reach an opinion of the Property's fair market value as of January 1, 2018. Wiegand explained that this is the same method used for all established hotels generating income, i.e., averaging three single-year work-ups (two prior years and the assessment year) to form an opinion as to a property's fair market value.

¶7 Wiegand testified that a single-year work-up value alone is not a conclusion as to a property's fair market value for that year. In short, he explained that these work-up values are determined based only on an individual year's operating data, and an opinion is formed as to fair market value by averaging single-year work-up values for the assessment year and the two years prior to the assessment year. Wiegand said that averages are used to best anticipate what a property may experience in the future, and that a knowledgeable and prudent property investor would look for as much information on a property as possible. Debelak agreed that investors would review at least three years of prior operating data when they determine a property's value.

¶8 The circuit court found Wiegand's testimony credible. On the other hand, the circuit court rejected Debelak's appraisal as a reliable indicator of the Property's fair market value because the properties used in Debelak's tier two sales comparison approach were not reasonably comparable to the Iron Horse considering their "lack of similarities" and "the amount of adjustments made" to them. For these reasons, the circuit court concluded that Rider failed to present significant contrary evidence to rebut the statutory presumption that the City's assessments were correct, and it dismissed Rider's claims.

¶9 Rider appeals.

DISCUSSION

¶10 When presented with excessive assessment claims under WIS STAT. § 74.37, we review the circuit court's determination and not the determination of the taxing district's Board of Assessors or Board of Review. Lowe's Home Ctrs., LLC v. City of Delavan, 2023 WI 8, ¶23 & n.ll, 405 Wis.2d 616, 985 N.W.2d 69. The City's assessments are entitled to a presumption of correctness under WIS. Stat. § 70.49(2) that "may be rebutted if the assessor did not correctly apply the [WPAM] and Wisconsin statutes or if a challenger presents significant contrary evidence." Lowe's Home Ctrs., 405 Wis.2d 616, ¶32. Whether the City's assessments complied with statutory directives is a question of law that we review independently, but the circuit court's factual findings will not be disturbed unless they are clearly erroneous, i.e., "against the great weight and clear preponderance of the evidence," because "[i]t is within the province of the factfinder to make determinations of the weight and credibility of evidence." Id., ¶¶24-25, 68.

¶11 Rider claims that the City's 2017 and 2018 assessments were excessive in violation of WIS. STAT. § 70.32(1). Section 70.32(1) states that "[r]eal property shall be valued by the assessor in the manner specified in the Wisconsin property assessment manual ... from the best information that the assessor can practicably obtain, at the full value which could ordinarily be obtained therefor at private sale." "Full value" in the statute has been interpreted to mean "fair market value." Flood v. Village of Lomira, Bd. of Rev., 153 Wis.2d 428, 435, 451 N.W.2d 422 (1990). Section 70.32(1) lists three sources of information used to determine a property's fair market value for tax assessment purposes. "The order in which these sources are listed is indicative of the quality of information each source provides," and this methodology has been described as providing three "tiers" of analysis. Lowe's Home Ctrs., 405 Wis.2d 616, ¶28.

¶12 A tier one analysis examines recent arm's-length sales of the subject property as the best information of a property's fair market value. Id., ¶29. It is undisputed that there were no recent sales of the Iron Horse upon which to base a tier one analysis.

¶13 If the property has not been recently sold, the appraiser moves to a tier two analysis, examining recent arm's-length sales of reasonably comparable properties. Id. This approach is "based on the premise that similar properties will sell for similar prices on the open market." Id., ¶42 (quoting 1 Wisconsin Property Assessment Manual 7-24 (2016)). "'[Reasonable comparability' depends upon the degree of similarity between the properties in question." Rosen v. City of Milwaukee, 72 Wis.2d 653, 686, 242 N.W.2d 681 (1976). The WPAM provides specific factors for assessors to consider in determining whether a property is "comparable" to the subject property, including: "age, condition, use, type of construction, location, design, physical features and economic characteristics." Lowe's Home Ctrs., 405 Wis.2d 616, ¶43.

¶14 Finally, if both tier one and tier two information is...