Valuation of individual unsold units in condominium development is proper for property tax assessment purposes.

Author:Blair, Benjamin A.
Position:Recent Court Decisions on Real Estate and Valuation - Montage Marketing LLC v. Washoe County Bd. of Equalization
 
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This case involves the tax assessment valuation of the unsold units of a 21-story luxury condominium development located in downtown Reno, Nevada. The building was converted from a hotel and subdivided into 376 residential units, which were fully developed by February 2009. As of May 2009, only 30 units had sold, and only 3 more units had sold by February 2010. The unsold units remained under the common ownership of Montage Marketing (Taxpayer) and continued to be marketed as individual residential units for sale.

To determine the 2009-2010 and 2010-2011 taxable values, the assessor followed the process dictated by Nevada statute. First, the assessor calculated the full cash value of the land of each condominium, but because the building qualified as a subdivision, the assessor applied a discount to the value of the land based on its expected absorption period--the number of years it would take for all of the units to sell. Next, the assessor calculated the taxable value of the improvements of each condominium. Finally, the assessor used the sales comparison approach to check that the taxable value of each unit did not exceed its full cash value; that approach reduced the taxable value of each condominium to 90% of its list price, $84,804,500 for the 2009-2010 tax year and $71,120,370 for the 2010-2011 tax year.

Taxpayer appealed its assessments to the State Board of Equalization (Board). Taxpayer contended that the assessor should have valued the condominiums collectively as one unit to derive a wholesale value to determine what the units would be worth if sold in bulk to a single investor. Taxpayer's appraiser followed this approach by first determining the aggregate retail price of all the unsold units, then applying a discounted cash flow (DCF) analysis to determine the present value of the units to a single buyer, $40,350,000 for the 2009-2010 tax year and $24,000,000 for the 2010-2011 tax year.

The crux of Taxpayer's argument was that, as a subdivision, the building should have been valued by the assessor by discounting the entire property, both land and improvements. While the assessor agreed the condominiums qualified as a subdivision, the assessor asserted that the subdivision discount only applied to land. The Board agreed with the assessor and upheld the original values, and the district court upheld that decision. Taxpayer appealed.

At issue before the state supreme court was a Nevada statute that provided that, while most...

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