Appeal from the Illinois Property Tax Appeal Board. PTAB Docket Nos. 05-23585.01-C-3 06-29317.001-C-3
The opinion of the court was delivered by: Justice Murphy
JUSTICE MURPHY delivered the judgment of the court, with opinion. Steele, P.J., and Neville, J., concurred in the judgment and opinion.
¶ 1 This appeal arises from an administrative review proceeding before the Illinois Property Tax Appeal Board (PTAB). The PTAB considered a consolidated appeal of the valuation for the tax years 2005 and 2006 by the Cook County Board of Review (BOR) of respondent Sears, Roebuck & Company's (Sears) property at Chicago Ridge Shopping Center in Chicago Ridge, Illinois. The BOR certified an assessed value of $6,085,755 for the property, representing a market value of $16,015,144 and Sears sought review. Petitioner, Ridgeland School District No. 122 (school district), intervened in the matter as a matter of right to protect the interests of the taxing district.
¶ 2 The school district, Sears and the BOR each submitted appraisals to the PTAB and presented testimony of their own experts. A final administrative decision was entered on January 21, 2011, finding the market value of the property to be $10,400,000 for the assessment dates at issue and reducing the certified assessed value of the property to $3,952,000. The school district filed a petition for review with this court. For the following reasons, we affirm the decision of the PTAB.
¶ 4 The property at issue is located in Chicago Ridge, Illinois, and contains a land area of 666,632 square feet, improved with a two-story, 211,311-square-foot masonry building constructed in 1981. The property is zoned C-3, regional shopping district, and is part of the Chicago Ridge Shopping Center. Sears operates an anchor department store on the property, including a 22,424-square-foot auto center within the building.
¶ 5 For the tax years 2005 and 2006, the BOR certified an assessed value of $6,085,755 for the property, representing a market value of $16,015,144. Sears appealed this assessment, claiming that the assessment should be $3,268,000, or a market value of $8,600,000. The parties failed to reach a settlement and the PTAB held a hearing.
¶ 6 Sears presented an appraisal of the property prepared by Joseph M. Ryan, MAI, of LaSalle Appraisal Group, Inc. Ryan testified to his appraisal experience, in particular his experience with anchor department stores, and was accepted as an expert. He testified that he did a complete interior and exterior inspection of the property. Ryan termed the Chicago Ridge mall a super-regional mall, though he noted the mall was close to the 800,000-square-foot minimum for that designation. He found the mall, which has two anchor stores and inline stores in between, to be inefficiently designed.
¶ 7 As addressed in his appraisal report, Ryan did not consider the cost approach to valuation. Ryan explained the market development and forces in retail indicated that mall properties were losing market share to stand-alone, lifestyle center and big box retail stores and the design was obsolete by industry standards. He was unable to find any sales of anchor department store sites. He also noted that these types of stores have very close relationships with developers that are unique to the owner-user. Further, he noted that no shopping center developers he has interviewed utilized the cost approach in their investment decisions. Accordingly, he found the sales-comparison and income approaches were most applicable to valuing the property. He stated that this did not affect the final opinion of value for the subject property in any way because the present use was the best use of the property.
¶ 8 Ryan explained that the income approach began with estimating the potential gross income for the property. The second step is to estimate the vacancy and collection loss for the property. Third, the effective gross income is factored from the first two steps and operating expenses are factored in to determine a net operating income, which is capitalized into a value estimate. Because the property is owner-occupied, there is no income or expense derived from operation of the property; therefore, Ryan's income-approach calculations were market-based.
¶ 9 Ryan obtained median rental rates for several similar department stores in the Midwest, avoiding use of any big box retail stores. He explained that anchor department stores frequently set rent at a per-square-foot rate based on a percentage of sales. Based on the rents at the comparable sites and adjusting for lease date, size, location, condition of the property and the auto center, Ryan concluded the property would have a rental rate of $5 per square foot. He determined credit losses and a vacancy allowance and a capitalization rate of 10.58% to conclude that the property had a market value of $8,700,000 million for 2005 and 2006.
¶ 10 Under the comparable-sales approach, Ryan identified several similar properties in Illinois, Ohio, Michigan and Indiana because local comparable properties were sale of leasebacks, financing mechanisms, or big box stores that could not be used. He indicated that he verified all terms and conditions of the sales and adjusted for location by demographics, competitive market conditions, population density and median household income. Ryan noted some out-of-market sales in Colorado and Texas to show that there is a defined market for department stores. Ryan settled on a market value of the property for $40 per square foot, or $8,450,000.
¶ 11 Ryan took the two values and, giving more weight to the comparable-sales approach because the property is owner-occupied and not leased, concluded the property had a final market value estimated at $8,600,000. Ryan stated that his opinions were formed in conformance with the standards and ethics of his ...