Powell Street I, LLC, owned a shopping center that included one anchor tenant space and twenty-one other retail spaces of varying sizes. Of the shopping center's total 118,000 square feet, the anchor space was 54,000 square feet.
On January 1, 2014, the anchor space was vacant. A discount grocer had occupied the anchor space for twenty-five years but had vacated the property in January 2013 and ended lease payments the following May. In addition, three other spaces totaling 11,000 square feet were vacant, resulting in an overall vacancy rate for the center of 51% on January 1, 2014. The leases for the remaining spaces included clauses that modified their terms if the anchor space was vacant, namely lower rent payments or cancellation of the lease.
For the January 1, 2014, assessment date, the Multnomah County Assessor initially assigned the center a market value of $14-7 million, which the taxpayer appealed. At trial before the Oregon Tax Court, both the taxpayer and the Department of Revenue on behalf of the assessor presented appraisals. In the appraisals, both appraisers used the fee simple estate as the basis for the valuation, which includes, when a leased property is involved, the lessor's leased fee interest and the lessee's leasehold interest.
Both appraisers reached similar conclusions on several underlying facts. They agreed that the center's highest and best use was its current use as a shopping center and reached roughly similar conclusions regarding the market rents per square foot. Both appraisers agreed on a value of $9 per square foot for the anchor space, and their respective market vacancy levels were similar: 10% for the taxpayer's appraiser, and 8% for the department's appraiser.
The primary dispute between the appraisers was whether the shopping center should be valued as if it did have a market vacancy rate, i.e., whether the property should be valued at stabilized or nonstabilized occupancy. The taxpayer's appraiser concluded that the property was not at stabilized occupancy, because it was missing an anchor tenant and had an overall vacancy rate of over 50%, a significant deviation from market vacancy rates. In contrast, the department's appraiser concluded that the property should be considered as stabilized, since tenant turnover was normal market behavior and the anchor space had been vacant for less than a year.
The difference in the appraisers' conclusions about stabilization affected their respective...