HomeMy WebLinkAbout92-4003 CivilIN RE: APPEAL OF
PENN HARRIS COMPANY IN THE COURT OF COMMON PLEAS OF
CUMBERLAND COUNTY, PENNSYLVANIA
PENN HARRIS COMPANY
Petitioner/Appellant
V.
BOARD OF ASSESSMENT APPEALS
OF CUMBERLAND COUNTY,
Respondent/Appellee CIVIL ACTION. LAW
V.
EAST PENNSBORO TOWNSHIP
and EAST PENNSBORO SCHOOL
DISTRICT,
Intervenors/Appellees
NO. 4003 CIVIL 1992
IN RE: TAX ASSESSMENT APPEAL
BEFORE OLER J.
ORDER OF COURT
AND NOW, this IZday of November, 1993
upon consideration of the tax
assessment appeal filed herein, following a hearing and in
accom accordance with the
Panying Opinion, it is ORDERED as follows:
THE MARKET VALUE as of August 31, 1992, for the ei
ght acre Parcel owned
by Petitioner
and bearing tax parcel number 9-20-1854-008 is, upon
counsel, fixed at agreement of
$1,150,000; the market value as of the same date for
Parcel owned b the 17 -acre
Y Petitioner and bearing tax parcel number 9-20-1856-001
$6,430,000, is fixed at
THE COMMON LEVEL RATIO for Cumberland Count
July 1, 1992 w Y, published on or before
as eight percent. The predetermined ratio was 25 percent.
THERE BEING A DIFFERENCE of more than 15 percent
level ratio and the predetermined ratio between the common
as a result of which assessments are to be
determined by application of the common level ratio to market value, the assessment
with respect to the eight -acre parcel bearing tax parcel number 9-20-1854-008 is fixed
at $92,000, and the assessment with respect to the seventeen -acre parcel bearing tax
parcel number 9-20-1856-001 is fixed at $514,400. The total assessment is thus fixed
at $606,400.
BY THE COURT,
I - Y /t', L 0 /1-ar / -
Wesley Oler, J0
J.
Peter J. Ressler, Esq.
Paula J. Leicht, Esq.
1801 North Front Street
P.O. Box 729
Harrisburg, PA 17108-0729
Attorneys for Owner/Appellant/Petitioner
Penn Harris Company
Stephen D. Tiley, Esq.
5 South Hanover Street
Carlisle, PA 17013
Attorney for Appellee/Respondent
Board of Assessment Appeals
of Cumberland County; and
for Intervenors/Appellees
East Pennsboro Township and
East Pennsboro School District
:rc
IN RE: APPEAL OF IN THE COURT OF COMMON PLEAS OF
PENN HARRIS COMPANY CUMBERLAND COUNTY, PENNSYLVANIA
PENN HARRIS COMPANY,
Petitioner/Appellant
V.
BOARD OF ASSESSMENT APPEALS
OF CUMBERLAND COUNTY, CIVIL ACTION - LAW
Respondent/Appellee
V.
EAST PENNSBORO TOWNSHIP
and EAST PENNSBORO SCHOOL
DISTRICT,
Intervenors/Appellees NO. 4003 CIVIL 1992
IN RE: TAX ASSESSMENT APPEAL
BEFORE OLER, J.
OPINION AND ORDER OF COURT
This case is a tax assessment appeal by an owner of real estate in Cumberland
County.' A hearing was held on the appeal on May 3, 1993, and July 19, 1993. A
transcript of the proceedings was filed on September 20, 1993, and briefs have been
submitted on behalf of the parties. Based upon the pleadings and evidence presented
at the hearing, the following Statement of Facts, Discussion and Order of Court are
made and entered:
Statement of Facts
Petitioner, a corporation doing business as the Penn Harris Hotel and
Convention Center and as the Penn Harris Inn,' is the owner of two contiguous
' See Act of May 21, 1943, P.L. 571, §704, as amended, 72 P.S. §5453.704 (1993 Supp.).
2 Hearing, May 3, 1993, and July 19, 1993, N.T. 11 (hereinafter N.T.
No. 4003 Civil 1992
parcels of lands in East Pennsboro Township, Cumberland County, Pennsylvania -4
One parcel, containing 8.06 acres,' is vacant,' wooded' land, and carries tax parcel
number 9-20-1854-008.8 The other parcel, containing 16.98 acres,' is improved. It
contains a 262-room10 hotel, two restaurants, a lounge, meeting rooms,11 and a
convention center having a 1600 -person capacity;12 its land -to -building -area ratio is
4.24 to 1;13 it contains parking for 742 vehicles;14 and it carries taxx parcel number
' See Hearing, May 3,1993, and July 19,1993, Respondent's Exhibit 18, at 32 (hereinafter
Respondent's Exhibit _, at _).
4 Respondent's Exhibit 18, at 29.
6 Respondent's Exhibit 18, at 29. Or, 8.043 acres. See Hearing, May 3, 1993, and July 29,
1993, Petitioner's [labeled Plaintiffs] Exhibit 2, at 30 (hereinafter Petitioner's Exhibit
_, at __).
30.
6 Petitioner's Exhibit 2, at 5, 37.
' Respondent's Exhibit 18, at aerial photograph pages.
8 N.T. 6-7; Respondent's Exhibit 18, at 29.
9 Respondent's Exhibit 18, at 29. Or, 16.593 acres. See Petitioner's Exhibit 2, at 30.
10 N.T. 211; Respondent's Exhibit 18, at 29. Or, 260 -room. See Petitioner's Exhibit 2, at
" Respondent's Exhibit 18, at 29.
12 Petitioner's Exhibit 2, at 30.
13 Petitioner's Exhibit 2, at 30; cf.. Respondent's Exhibit 18, at 30.
14 Petitioner's Exhibit 2, at 30; cf.. Respondent's Exhibit 18, at 30.
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No. 4003 Civil 1992
9-20-1856-001.16
The vacant, eight -acre tract was previously assessed at $37,650, yielding an
implied market value of $470,625.18 The improved, seventeen -acre tract was assessed
at $988,790, yielding an implied market value of $12,359,875.17
On August 31, 1992, Petitioner appealed these assessments to the Board of
Assessment Appeals of Cumberland County, Respondent herein.18 Following a
hearing, the Board raised the market value determination for the eight -acre parcel to
$1,200,000, and decreased the market value determination for the seventeen -acre
parcel to $8,000,000.19 These determinations yield assessment figures of $96,000 and
$640,000.20 On November 12, 1992, Petitioner appealed the Board's order to this
Court.21
By agreement of counsel, it has been stipulated that the market value of the
16 N.T. 6; Respondent's Exhibit 18, at 29.
is See Petitioner's Exhibit 2, at 94; text accompanying notes 108-10 infra.
17 N.T. 189; Respondent's Exhibit 17; see Petitioner's Exhibit 2, at 94; text accompanying
notes 108-10 infra.
18 Petition for Appeal from Assessment of the Board of Assessment Appeals, paragraph 5;
Reply of Respondent and Intervenors, paragraph 5.
is Petition for Appeal from Assessment of the Board of Assessment Appeals, paragraph 6,
Exhibit "A"; Reply of Respondent and Intervenors, paragraph 6.
20 See text accompanying notes 108-10 infra.
21 A right of appeal is provided for in the Act of May 21, 1943, P.L. 571, §704, as amended,
72 P.S. §5453.704 (1993 Supp.).
3
No. 4003 Civil 1992
eight -acre parcel as of the appropriate date herein' is $1,150,000. Consequently,
the assessment for this parcel will be fixed at $92,000.' No agreement has been
reached, however, as to the value of the seventeen -acre parcel. The balance of this
Opinion will deal with that property.
The address of the property is 1150 Camp Hill Bypass, Camp Hill, East
Pennsboro Township, Cumberland County." It is located across the Susquehanna
River from Harrisburg in an area known as Harrisburg's west shore; the property is
about two miles from the state capitol building and about 20 minutes from the
Harrisburg International Airport.28
The tract has road frontage on the south on the Camp Hill Bypass (sometimes
referred to as U.S. Routes 11 and 15 and sometimes as "old" or "business" U.S. Routes
11 and 15), on the north on the Taylor Bridge Bypass (sometimes referred to, possibly
incorrectly, as "new" U.S. Routes 11 and 1527), and on the east on Erford Road."
22 I.e., as of August 31, 1992, the date of Petitioner's appeal to the Board. See Act of May
21, 1943, P.L. 571, §704(b)(1), as amended, 72 P.S. §5453.704(b)(1) (1993 Supp.); N.T. 302.
23 N.T. 5.
2' See text accompanying notes 108-10 infra.
26 Respondent's Exhibit 18, at 8.
26 N.T. 202-03; Respondent's Exhibit 18, at 8.
27 It does not appear to the Court that the Taylor Bridge Bypass has been designated as
U.S. Routes 11 and 15. But see Petitioner's Exhibit 2, at 29[a].
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No. 4003 Civil 1992
Direct access is presently available from the Camp Hill Bypass and Erford Road
Only. 29
The Harrisburg area is located within 250 miles of about 25 percent of the
nation's population.30 The general economic condition of the region has been
relatively good."
However, the United States hotel industry in general suffered a poor year in
1991, and its recovery since then has been described as slow.32 Overbuilding in the
industry may take years to absorb." In the Harrisburg area, this surfeit of rooms
is reflected in the fact that in 1991 the market consisted of 4000 rooms, whereas in
1966, when the Penn Harris was largely built,34 it was comprised of 1000 rooms."
28 N.T. 198, 202-03, 207. Respondent's Exhibit 18, at 9 and aerial photographs;
Petitioner's Exhibit 2, at 29[a]-30. The Court has adopted the designation of Respondent's
expert of the road on the south of the property as the Camp Hill Bypass. See Respondent's
Exhibit 18, aerial photographs. Other persons might refer to the Taylor Bridge Bypass and
the "Camp Hill Bypass."
29 N.T. 207.
30 N.T. 204.
31 N.T. 204.
32 N.T. 268.
33 N.t. 88.
34 Actually, "[t]he center section and the guest room wings on either side of it ... were built
in 1966. The outside 67 -room wing to the west ... was built [in] 1976 .... The convention
center was built in 1971/72." Petitioner's Exhibit 2, at 34-35.
35 N.T. 58.
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No. 4003 Civil 1992
Since 1968, the Penn Harris share of the market has dropped from 25 percent to eight
percent.38 Accompanying the increase in rooms in the region has been an infusion
of budget, or limited service, motels and hotels, catering to economy -minded
travelers.87
In 1988, the Penn Harris lost about seventy thousand dollars. In 1989, it lost
about a half million dollars. For 1990, the annual loss had increased to over six
hundred thousand dollars, and, in 1991, the Penn Harris suffered losses in excess of
a million dollars. Another million dollars was lost by the company in 1992, and for the
first quarter of 1993 alone, the indicated loss is about three hundred and fifty
thousand dollars.38 Apparently, these losses have been absorbed by the owner of the
corporation, 3' Robert F. Nation,40 who receives no salary from the company" and
who is described as being "morally opposed to bankruptcy."42
With respect to the physical condition of the property, the Penn Harris has
36 N.T. 58.
37 N.T. 103, 106, 272-74; Respondent's Exhibit 18, at 70-71.
38 N.T. 20; Petitioner's Exhibit 1.
39 N.T. 44-45.
40 N.T. 334; see Respondent's Exhibit 2.
41 N.T. 342.
42 N.T. 45.
C�
No. 4003 Civil 1992
remained largely unrenovated since its construction. 41 The average estimated
economic life of a hotel is between 25 and 30 years,' and hotel rooms are customarily
upgraded every seven years.' In the case of the Penn Harris, maintenance has been
"deferred,"' and little furniture has been purchased since 1976.47 As a result, much
of the heating and cooling system is in "marginal" condition, 41 the telephone system
is antiquated,49 the roof needs repairs,60 and its rooms are comparable to those of
budget type facilities in terms of physical state.81 The present management has
concluded, not unreasonably, that an expenditure of two and three-quarter million
dollars would be necessary to place the property in good condition."
In its present state, the hotel can not acquire the advantage63 of a franchise.54
43 N.T. 31, 58-59, 107.
44 Petitioner's Exhibit 2, at 36.
45 N.T. 25.
46 N.T. 109.
47 Petitioner's Exhibit 2, at 34.
48 N.T. 12.
49 N.T. 48-49.
m N. T. 16.
51 N.T. 59-60.
52 N.T. 17, 46.
53 N.T. 263.
i7
No. 4003 Civil 1992
Efforts to sell the property have not produced any offers." Attempts to obtain
additional financing have failed.fis
The occupancy rate for the Penn Harris in 1992 was 33.48 percent .5' The
average room rate was $50.08.68 By way of comparison, the 292 -room Hotel Hershey
had an occupancy rate of 72 percent, and an average room rate of $132.b0 On the
other hand, a 261 -room hotel in Harrisburg80 has fallen into bankruptcy.B1 The
subject property is "underperforming the current marketi82 and is "distressed."83
At one time, the Penn Harris was managed internally.84 However, because of
the deteriorating financial condition of the enterprise, an outside management firm
b4 N.T. 16-17. Renovations proposed by Holiday Inn would cost $2,234,459. N.T. 34.
55 N.T. 23.
5s N.T. 26.
57 N.T. 36.
m N.T. 36.
59 Respondent's Exhibit 18, at 70.
60 Respondent's Exhibit 18, at 71.
6' N.T. 268.
62 N.T. 120.
63 Petitioner's Exhibit 2, at 51.
64 N.T. 28.
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No. 4003 Civil 1992
was brought in to operate the facility in 1991." This remedial action has not
produced the desired results in terms of income.se
The applicable predetermined ratio for Cumberland County is 25 percent,87 and
the common level ratio is eight percent.'
As usually happens, the expert witnesses of the parties have arrived at
diametrically opposed opinions, differing by millions of dollars, as to the value of the
property at issue, and the resolution of the matter is left to the Court, whose most
significant purchase to date has been a 1972 Dodge Dart.89 Both sides are in
agreement that the property does not lend itself well to valuation by a conventional
comparable sales method70 or by a cost of reproduction method .71 Thus, an
approach involving income with respect to the property has been favored by each
65 N.T. 27-28.
ss N.T. 29.
67 See Appeal of Do -Ma Corp., No. 4008 Civil 1992 (Bayley, J., June 2, 1993).
ss N. T. 188.
ss No reasonable offer refused.
70 At least if this method is not considered to include the "gross room rate multiplier
approach," which one of the appraisers has utilized. N.T. 8.
71 N.T. 8; see Act of May 21, 1943, P.L. 571, §602(a), as amended, 72 P.S. §5453.602(a)
(1993 Supp.).
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No. 4003 Civil 1992
expert.?2
Both experts accept the proposition that, given the existing structures, the
highest and best use of the property is as a hotel and convention center.73 On behalf
of the Petitioner taxpayer, Elliott W. Weinstein, MAI, president of the Weinstein
Appraisal Group,74 has appraised the property at $3,500,000.75 On behalf of the
Respondent and intervening taxing bodies, Laurence A. Hirsh, MAI, president of the
Hirsh Valuation Group,7B has appraised it at $8,000,000.77
Mr. Weinstein utilized, primarily, the "gross room revenue multiplier" approach
in his appraisal.78 This method involves a determination of a hotel's value by (a)
examining other hotel sales, (b) from the examination, determining an average ratio
of sales price to yearly room revenue, (c) assuming a similar ratio in the matter at
issue of proper sales price to yearly room revenue, and (d) calculating the proper sales
72 N.T. 8; see Act of May 21, 1943, P.L. 571, §602(a), as amended, 72 P.S. §5453.602(a)
(1993 Supp.).
73 N.T. 84, 221; Petitioner's Exhibit 2, at 52; Respondent's Exhibit 18, at 69.
74 N.T. 53-54.
75 Petitioner's Exhibit 2, at 60, 93.
76 N.T. 192.
77 N.T. 201, 256; Respondent's Exhibit 18, at 142-43.
78 N.T. 75; Petitioner's Exhibit 2, at 59-60.
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No. 4003 Civil 1992
price by applying the average ratio to the yearly room revenue of the hotel in
question.79 The gross room revenue multiplier approach, which involves elements of
the comparable sales method and the income method,80 is said to be useful where a
hotel is losing money, rendering an estimate of value based on income alone
difficult.81
In utilizing this approach, Petitioner's appraiser determined the average ratio
of actual sales prices to yearly room revenues of similar hotels with negative net
operating incomes, in the northeast, to be 2.15 to 1.82 Assuming such a ratio to be
appropriate for a determination of value of the present hotel, he applied the ratio to
the present yearly room revenue of $1,640,050.71.83 The result was an appraised
79 See Petitioner's Exhibit 3 (Cooper & Lybrand, II Hospitality Directions [No.1],
Determining Hotel Price in a Buyers' Market: The Reality of Today's Hotel Transactions, at
14-21 [19921); N.T. 73.
S0 N. T. 8, 73.
8' N.T. 75.
82 Petitioner's Exhibit 2, at 60.
' This figure was arrived at by multiplying the number of rooms in the hotel by the
number of days in the year by the average price of a room by the occupancy rate. N.T. 64.
The number of rooms assumed was 260; the number of days in the year was 365; the average
price of a room was $50, and the occupancy rate assumed was 35 percent. N.T. 77-78. The
actual result of the computation is "slightly different" from the figure given, 'but reasonably
close," according to the appraiser. N.T. 78.
11
No. 4003 Civil 1992
market value of $3,500,000.84
Mr. Hirsh utilized, primarily, an income approach based on a projected
"stabilization" of the property.85 "The income approach is ... defined as a
measurement of the present worth of the future rights to income ....1188 Stabilized
income, in this context, "is the income that can be achieved when the property is
operating in a manner consistent with the market.i87
With respect to this approach, Respondent's appraiser considered three different
techniques: the direct capitalization method, the debt service coverage ratio method,
and the discounted cash flow analysis method.88 Of these, he regarded the direct
capitalization method as the most reliable.89
The direct capitalization method, with stabilization of the property being
assumed, involves a determination of value by (a) determining net operating income
through use of stabilized gross revenue and operating expenses, (b) establishing a
capitalization rate — i.e., a reasonable annual percent that a mortgagee and buyer
84 Petitioner's Exhibit 2, at 60. This figure is rounded off from $3,526,109. Id. A more
conventional income approach by Mr. Weinstein yielded a result of $3,300,000. Id., at 78. A
reproduction cost approach yielded a result of $3,368,350. Id. at 92.
as N.T. 229; Respondent's Exhibit 18, at 143.
as N.T. 228; see Respondent's Exhibit 18, at 105.
117 N.T. 229.
88 N.T. 225.
89 N.T. 264.
12
No. 4003 Civil 1992
would expect to receive on their contribution to the purchase,90 (c) calculating a
preliminary sales price by equating the net operating income with the said percent of
the (to be determined) sales price; and (d) arriving at a proper sales price by deducting
any expense necessary to stabilize the property.91
In utilizing this income approach in direct capitalization form, based upon a
stabilized net operating income, Respondent's appraiser determined the said net
operating income per year to be $1,183,516, premised upon an occupancy rate of
65%92 and a room rate of $70.00.93 He established a capitalization rate of 11.09
90 Less informally, the "capitalization rate" is "[t]he rate by which net operating income is
divided to estimate value." Respondent's Exhibit 18, at 105.
9' Respondent's Exhibit 18, at 112-15.
92 Respondent's Exhibit 18, at 107.
93 Respondent's Exhibit 18, at 108. More specifically, Mr. Hirsh estimated stabilized gross
room income to be $4,351,165 per year ($70.00 x 262 rooms x 365 days x 65% occupancy);
additional gross income per year arising out of the convention center was estimated to be
$2,610,699 (60% of the gross room income), for a total stabilized gross income per year of
$6,961,864. He estimated stabilized expenses per year to be $5,778,348, by taking a percentage
of gross income for departmental expenses (44%), undistributed expenses (29.5%), fixed
charges (4%), management expense (2.5%), and reserve for replacement (3%). Respondent's
Exhibit 18, at 106-112. By subtracting the stabilized expenses from the stabilized gross
income, he obtained the stabilized net operating income figure.
Regrettably, Mr. Hirsh's estimate of gross convention center income at 60% of gross
room income was supported at one point in his testimony by reference to information on a
similar property which he said he was not at liberty to reveal. N.T. 234-35. Respondent's
counsel concedes that this testimony should be stricken. Post -Hearing Brief on Behalf of
Respondents, at 68. On the other hand, the assumption of a 6:10 ratio between convention
center income and room income represents a substantial percentage decrease for convention
center income from the present Penn Harris 10:10 ratio. N.T. 235. In addition, the Court
accepts Mr. Hirsh's representation that even in the absence of that particular information his
opinion would remain the same. N.T. 260.
13
No. 4003 Civil 1992
percent, by blending the annual rate necessary to service a mortgage (estimated to be
11.98%) and the rate necessary to attract equity investment (estimated to be 8.39%)
for such a purchase, apportioned according to their probable shares of the purchase
price (estimated to be 70% for the mortgage and 30% for the equity investment).94
Equating the stabilized net operating income as thus determined with the percent as
thus established of the (to be determined) preliminary sales price, he calculated the
preliminary sales price to be $10,671,921.95 He then arrived at a proper sales price
by deducting the cost of upgrading the facility (estimated at $2,500,000) and replacing
certain furniture, fixtures and equipment (estimated at $216,800) from the preliminary
sales price."The result was an appraised market value of $8,000,000.97
The relatively more optimistic appraisal of Respondent's expert is premised, in
part, upon the propositions that new management would operate the hotel and
convention center more successfully,98 that an expenditure of several million dollars
9' Respondent's Exhibit 18, at 112-15.
9' Respondent's Exhibit 18, at 115.
9' Respondent's Exhibit 18, at 115-16.
9' Respondent's Exhibit 18, at 116, 125; N.T. 245, 257. This figure is rounded off from
$7,955,121. Respondent's Exhibit 18, at 116. A reproduction cost approach by Mr. Hirsh
yielded a result of $8,250,000. Id., at 142 (with a deduction of the stipulated eight -acre tract
value). A comparable sales approach was felt to be too speculative for utilization. Id., at 93.
98 N.T. 263.
14
No. 4003 Civil 1992
for renovations would generate higher occupancy and room rates,99 and that the
acquisition of a franchise would be similarly profitable.100 On the other hand, there
is nothing in the record to suggest what the present management is doing wrong in
the daily operation of the business; the premise that the condition of the rooms is
responsible for inadequate public use of the establishment is somewhat theoretical, in
the absence of market studies and surveys on the subject; and a franchise, while
beneficial, is not without a substantial cost in terms of franchise fees."' In addition,
part of the difficulty of the Penn Harris, it seems to the Court, may be attributable to
its location in a rather complex and confusing traffic area.
The relatively less optimistic appraisal of Petitioner's expert is premised, in part,
on the propositions that "the market today is for budget -type motels,i102 that the
present management is not incompetent,"' and that there has been "substantial
overbuilding in the Harrisburg market.i10' On the other hand, he concedes that the
Penn Harris is "underperforming the current market."los In addition, the Penn
99
N.T. 262.
100
N.T. 263.
101
N.T. 42 (eight percent).
102
N.T. 103.
Loa
N.T. 107.
104
N.T. 120.
Los
N.T. 120.
15
No. 4003 Civil 1992
Harris, with its large convention center capacity, has far greater drawing potential
than a hotel or motel alone.
The reports of both appraisers are excellent. That of Respondent's expert
impresses the Court as being somewhat more particularized to the subject property
and soundly reasoned in its approach to valuation, but either could form the basis for
a purchaser's decision.
Discussion
Statement of law. "In a tax assessment appeal the trial court hears the case de
novo and must determine the fair market value of the property based on the
competent, credible and relevant evidence. If, as is typically true, the expert testimony
conflicts, the trial court must determine the weight and credibility it will afford to each
expert." Pittsburgh -Des Moines Steel Co., Inc. v. McLaughlin, 77 Pa. Commw. 565,
568, 466 A.2d 1092, 1094 (1983); see Act of May 21, 1943, P.L. 571, §704, as amended,
72 P.S. §5453.704 (1993 Supp.). The market value is to be determined "as of the date
such appeal was filed before the board of assessment appeals." Id., §704(b)(1), as
amended, 72 P.S. §5453.704(b)(1) (1993 Supp.).
"Pennsylvania case law has consistently held that actual market value is that
price which a purchaser, willing but not obliged to buy, would pay an owner, willing
but not obliged to sell, taking into consideration all uses [to] which the property is
adapted and might in reason be applied." County of Monroe v. Pinecrest Development
16
No. 4003 Civil 1992
Corp., 98 Pa. Commw. 200, 203, 510 A.2d 1274, 1276 (1986); see In re Johnstown
Associates, 494 Pa. 433, 431 A.2d 932 (1981); Serluco v. Cumberland County Board of
Assessment and Revision of Taxes, 41 Cumberland L.J. 286 (1991).
Approaches to valuation are the "cost (reproduction or replacement, as
applicable, less depreciation and all forms of obsolescence), comparable sales and
income approaches...." Act of May 21, 1943, P.L. 571, §602(a), as amended, 72 P.S.
§5453.602(a) (1993 Supp.). "The Assessment Law ... requires that all three approaches
`must be considered in conjunction with one another."' Serluco v. Cumberland County
Board of Assessment and Revision of Taxes, 41 Cumberland L.J. 286, 290 n.13
(1991).108
The appraisal of an unprofitable, deteriorated convention center with overnight
accommodations on the basis of an income approach, utilizing the concept of a
stabilized property, rehabilitated by a willing buyer, has been accepted as displaying
a reasonable methodology by this Court. In Appeal of Do -Ma Corp., No. 4008 Civil
1992 (June 2, 1993), Judge Bayley noted that this type of "analysis is based on
anticipated further income — what the property should produce with reasonable
managerial competence— rather than just what income it is actually producing now."
Id., at 7. At the same time, the Court made the following point:
106 Act of May 21, 1943, P.L. 571, §602(a), as amended, 72 P.S. §5453.602(b) (1973 Supp.);
see Reichard -Coulston v. Revenue Appeals Bd., 102 Pa. Commw. 227, 517 A.2d 1372 (1986),
allocatur denied, 517 Pa. 611, 536 A.2d 1335 (1987).
17
No. 4003 Civil 1992
That does not mean that we will simply disregard [an]
income analysis based on historical performance .... The
current income status of the property together with
projections of anticipated income will obviously be
considered by a prospective purchaser. It is one thing to
crunch numbers based on projections in an effort to
anticipate future benefits, and quite another to put money on
the line and assume the risk of purchasing a twenty-seven
year old deteriorated property that has recently lost
substantial amounts of money.
Id., at 7-8 (emphasis added).
Judge Bayley made the further point that a deteriorating convention center's
loss of room rentals to "the many new small no -frill motels in the area," is "not at
convention rates to begin with," and that an assumption that a refurbished hotel will
somehow attract economy -minded travelers back at non -budget rates may be overly
optimistic. Id., at 9-10.
Furthermore, it cannot be overlooked that the completion
of deferred maintenance by any purchaser will still be on a
property that is in the latter stages of its useful life. Under
these circumstances it is reasonable to infer that the
expenses of maintaining the facility will still be higher than
the industry average."'
To arrive at an assessed value of property, "[t]he court, after determining the
market value of the property ..., shall then apply the established predetermined ratio
to such value unless the corresponding common level ratio ... varies by more than
fifteen per centum (15%) from the established predetermined ratio, in which case the
107 Appeal of Do -Ma Corp., No. 4008 Civil 1992 (June 2, 1993) (slip. op. at 10).
No. 4003 Civil 1992
court shall apply the respective common level ratio to the corresponding market value
of the property.i10' The "established predetermined ratio" is "the ratio of assessed
value to market value established by the board of county commissioners ....r10' The
"common level ratio" is "the ratio of assessed value to current market value used
generally in the county as last determined by the State Tax Equalization Board
11110
Application of law to facts. In the present case, the Court, after considering all
three methods of appraisal, is in agreement with the parties' stipulation that neither
the cost nor the conventional comparable sales approach is as reliable as an income
approach, including the income/comparable sales hybrid approach, emphasized by the
parties' experts. It is believed that a willing purchaser, not obligated to buy, and a
willing owner, not obligated to sell, would review the results of both of the appraisers'
methods, but would place greater emphasis upon the standard income approach,
utilizing a stabilized property concept, than upon the gross room revenue multiplier
approach, which appears to the Court somewhat more remote and innovative. In so
doing, however, the Court believes that a willing purchaser would be less inclined than
Respondent's expert to attribute the decline of the Penn Harris almost exclusively to
108 Act of May 21, 1943, P.L. 571, §704, as amended, 72 P.S. §5453.704(c) (1993 Supp.).
los Act of May 21, 1943, P.L. 571, §102, as amended, 72 P.S. §5453.102 (1993 Supp.).
110 Act of May 21, 1943, P.L. 571, §102, as amended, 72 P.S. §5453.102 (1993 Supp.).
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No. 4003 Civil 1992
poor management and deferred maintenance, and would in fact be extremely wary of
placing his or her investment funds in a distressed operation in a distressed industry.
For this reason, the Court believes that such a purchaser, and a willing seller not
obligated to sell, would project room rentals and occupancy rates at less optimistic
figures than did Respondent's expert — $65 per room and a 60% occupancy rate.
Accordingly, utilizing these figures, the Court finds that the market value of the
subject property is $6,430,000.111
ORDER OF COURT
AND NOW, this /-L'�- day of November, 1993, upon consideration of the tax
assessment appeal filed herein, following a hearing and in accordance with the
accompanying Opinion, it is ORDERED as follows:
THE MARKET VALUE as of August 31, 1992, for the eight -acre parcel owned
by Petitioner and bearing tax parcel number 9-20-1854-008 is, upon agreement of
counsel, fixed at $1,150,000; the market value as of the same date for the 17 -acre
parcel owned by Petitioner and bearing tax parcel number 9-20-1856-001 is fixed at
$6,430,000.
THE COMMON LEVEL RATIO for Cumberland County, published on or before
July 1, 1992, was eight percent. The predetermined ratio was 25 percent.
THERE BEING A DIFFERENCE of more than 15 percent between the common
111 See Exhibit 1 attached hereto; cf.. Respondent's Exhibit 18, at 116.
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No. 4003 Civil 1992
level ratio and the predetermined ratio, as a result of which assessments are to be
determined by application of the common level ratio to market value, the assessment
with respect to the eight -acre parcel bearing tax parcel number 9-20-1854-008 is fixed
at $92,000, and the assessment with respect to the seventeen -acre parcel bearing tax
parcel number 9-20-1856-001 is fixed at $514,400. The total assessment is thus fixed
at $606,400.
BY THE COURT,
J. Wesley Oler, Jr. J.
Peter J. Ressler, Esq.
Paula J. Leicht, Esq.
1801 North Front Street
P.O. Box 729
Harrisburg, PA 17108-0729
Attorneys for Owner/Appellant/Petitioner
Penn Harris Company
Stephen D. Tiley, Esq.
5 South Hanover Street
Carlisle, PA 17013
Attorney for Appellee/Respondent
Board of Assessment Appeals
of Cumberland County; and
for Intervenors/Appellees
East Pennsboro Township and
East Pennsboro School District
:rc
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No. 4003 Civil 1992
COMPUTATION
Gross Revenues
Room Revenue
$65/room x 262 rooms x
365 days x 60% occupancy
= $3,729,570
Other income (60% of Room Revenue)
_ $2,237,742
Operating Expenses
Department Expenses
44.0%
2,625,617
Undistributed Charges
29.5%
1,760,357
Fixed Charges
4.0%
238,692
Management
2.5%
1491183
Reserve for Replacement
3.0%
179,019
Net Operating Income
Capitalization Rate
Indicated Value Estimate
Less Costs to Renovate and Fix Roof
Less: F.F.& E
Value Estimate for the Real
Estate Only
Rounded to:
Exhibit 1
22
5,967,312
4,952,868
1,014,444
11.09%
9,147,376
(2,500,000)
(216,800)
6,430,576
6,430,000