CITY OF SASKATOON – CORPORATE SERVICES – ASSESSMENT BRANCH

1. CITY OF SASKATOON – CORPORATE SERVICES – ASSESSMENT BRANCH 2012 Appeals Panel Presentation SAAA Conference May 16, 2012

2. 2009 Revaluation Cycle Stats 2012 Appeals Panel - city of Saskatoon • Number of Appeals heard: • 2009 Board of Revision Appeals 210 • 2010 Board of Revision Appeals 98 • 2011 Board of Revision Appeals 73 • 2012 Board of Revision Appeals 77 A

3. Encl. Mall & Power Centre Valuation Over the 2009 Cycle 2012 Appeals Panel - city of Saskatoon • Back ground: • 3 enclosed mall sales between 2004 – 2006 • Median cap rate of the three sales – 8.26% • Only 1 Power Centre sale – not used. • Cap rate of 8.26% was applied to the Power Centres • Enclosed Malls and Power Centres had their own models to develop Net Operating Income. A

4. The Sales 2012 Appeals Panel - city of Saskatoon A

5. Vacancy Analysis 2012 Appeals Panel - city of Saskatoon • Vacancy Overview • Income and Expense forms were analyzed between 2004 and 2006 for the Enclosed Shopping Centres • A vacancy of 5% was determined • A typical rent for CRU space per square foot was developed $32.50/ft2 • The 5% vacancy was applied to the gross building area to determine a typical vacant space. • The $32.50/ft2 was then applied to that vacant space to estimate an annual vacancy to be used in the analysis of the sales. A

6. Vacancy Application Example 2012 Appeals Panel - city of Saskatoon • Square Footage • Vacancy × of CRU Space = Vacant Space • 5% 300,000 ft2 15,000 ft2 • Typical CRU • Rent × Vacant Space = Vacancy Allowance • $32.50 15,000 ft2 $487,500 A

7. The Appeal 2012 Appeals Panel - city of Saskatoon • Ground: The assessment value is too high and in turn in error. • Fact: The vacancy adjustment calculated does not correctly account for the vacancy. The assessor used the square footage of the total area instead of the proportionate value of each area which affects the vacancy allowance. [EMPHASIS ADDED] • The Agent advocated that the 5% vacancy should be applied to the Potential Gross Rent instead of a square footage. • The effect of changing the vacancy for the subject property would reduce the allowance by $8,990 resulting, based on this ground, a slightly lower assessment. • The City pointed out at the hearing that any change in methodology used to develop the rent, vacancy, structural allowance, or non recoverables would have an effect on the sales analysis and in turn affect the cap rates. A

8. The BOR Decision 2012 Appeals Panel - city of Saskatoon The BOR requested an undertaking to review what affect, if any, the change in vacancy methodology would have on the sales cap rates. The City responded with the following table: The BOR found that the Vacancy method used by the City was an error. They reduced the value in part based on the change in vacancy. A

9. The AAC Decision 2012 Appeals Panel - city of Saskatoon The City appealed the BOR decision to the AAC on the basis that an alternative method of estimating vacancy did not indicate error. The AAC disagreed. The AAC found that the variation in the range of CRU rents from $10 to $180 was not properly accounted for with a rate of $32.50/ft2 The AAC decision did not indicate an assessment value for the subject property. The decision did state: [24] The Committee finds that the method used by the assessor to calculate the vacancy adjustment is in error and in correcting that error the assessor should recalculate the capitalization rate based on the three sales in paragraph 3 above and apply the new rate if a change is warranted. [EMPHASIS ADDED] A

10. Decision Results 2012 Appeals Panel - city of Saskatoon • The new method of estimating vacancy changed the cap rate for the subject property to a value higher than the original assessment. • In Alberta the value would have been corrected and set at $151,210,711. • City of Edmonton v. Army & Navy Department Stores Ltd., MGB BO 112/02 • FHR Real Estate Corp. v. Jasper, MGB BO 051/05 • Huntington Galleria v. The City of Edmonton, November 20, 2009, ARB • But the property is in Saskatchewan so the assessment remained at the lower value. • Prince Albert (City) v. 101027381 Saskatchewan Ltd., 2009 SKCA 59 A

11. Application of the Decision 2012 Appeals Panel - city of Saskatoon The AAC did not render the decision until April 4, 2011. The affect of the decision was to change the vacancy allowance method which also reduced the cap rate from 8.26% to 8.00%. All the Enclosed Malls and Power Centres in Saskatoon were corrected to a cap rate of 8.00%. This correction was not applied in 2010 as the decision was not rendered until 2011. A

12. The Effect on the Population 2012 Appeals Panel - city of Saskatoon The Agents requested change in vacancy allowance methodology had the following affect on the Enclosed Mall and Power Centre population: A

13. Statistical Effect of the Change 2012 Appeals Panel - city of Saskatoon

14. The Precedent Set 2012 Appeals Panel - city of Saskatoon There were a number of other Enclosed Malls and Power Centres under appeal in 2009 though 2012. Circle Centre Mall was appealed in 2009 and 2010. One of the grounds in 2010 was the vacancy adjustment. When the 2010 Circle Centre appeal was heard by the BOR in May 2010 the Midtown AAC decision had not yet been rendered. A

15. Circle Centre BOR 2010 Appeal 2012 Appeals Panel - city of Saskatoon At the hearing and reflected in the decision, the Agent stated that the vacancy ground of appeal was protective and they accept the Boards decision for the subject from the previous years appeal (2009). Circle Centres 2009 appeal was based upon carry forward of the evidence and argument from the 2009 Midtown appeal. The result of the 2009 Midtown appeal changed the vacancy and cap rate. How would this affect Circle Centres 2010 appeal? A

16. Circle Centre BOR Hearing 2012 Appeals Panel - city of Saskatoon The BOR concluded: As agreed by the Appellant and Respondent, the evidence presented and decision of the Board in Appeal No. 375-2009 applies to the first two grounds of appeal. … This recalculation resulted in the assessed value of the property under appeal being increased by $266,200 from $56,607,700 to $56,873,900, the same assessed value as determined in 2009. …the Appellant should have been aware that the impact of agreeing to a protective appeal pending a decision by the Saskatchewan Municipal Board on the findings of 375-2009 would be an increase in the assessed value to the amount determined in 2009. This issue will ultimately be resolved by the appeals currently at SMB. A

17. Doing the Math 2012 Appeals Panel - city of Saskatoon

18. The Saga Continues 2012 Appeals Panel - city of Saskatoon The Agent appealed Circle Centres 2010 BOR decision based on the following: 1. The Board erred in increasing the assessment when the appeal specifically asked for the assessment to be reduced. 2. The Board erred in changing the Cap Rate based on a change in the vacancy adjustment for the subject property. The AAC hearing is scheduled for 3:00 pm today.

19. 2012 Appeals Panel - city of Saskatoon Questions?