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

2. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON 2009 Revaluation Cycle Stats 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

3. A 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. 2012 A PPEALS P ANEL - CITY OF S ASKATOON Encl. Mall & Power Centre Valuation Over the 2009 Cycle

4. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON MallSale Year Adjusted Sale Price Cap Rate Midtown Plaza2004$129,000,0009.55% Lawson Heights2005$45,500,0008.26% Market Mall2004$28,100,0008.12% Median8.26% Statistical Measures 2009 ASR 0.995 COD5.8% The Sales

5. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON 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/ft 2 The 5% vacancy was applied to the gross building area to determine a typical vacant space. The $32.50/ft 2 was then applied to that vacant space to estimate an annual vacancy to be used in the analysis of the sales. Vacancy Analysis

6. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON Square Footage Vacancy× of CRU Space= Vacant Space 5% 300,000 ft 2 15,000 ft 2 Typical CRU Rent × Vacant Space= Vacancy Allowance $32.50 15,000 ft 2 $487,500 Vacancy Application Example

7. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON 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. The Appeal

8. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON 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. MallSale Year Adjusted Sale Price Cap Rate Midtown Plaza2004$129,000,0009.54% Market Mall2004$28,100,0008.00% Lawson Heights2005$45,500,0007.97% Median8.00% The BOR Decision

9. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON 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/ft 2 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] The AAC Decision

10. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON 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 Mall Org. Cap Rate 8.26% Revised Cap Rate 8.00% Change Midtown Plaza$146,599,800$151,210,711+ $4,610,911 Decision Results

11. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON 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. Application of the Decision

12. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON The Agents requested change in vacancy allowance methodology had the following affect on the Enclosed Mall and Power Centre population: Mall / Power Centre Assessed Value at 8.26% Assessed Value at 8.00% Increase% change Midtown Plaza $146,599,800$151,210,711$4,610,9113.15% Centre at Circle $62,544,500$63,064,300$519,8000.83% Stonebridge Power Centre $51,727,400$53,408,600$1,681,2003.25% Lawson Heights $44,809,900$44,817,600$7,7000.02% Preston Crossing $44,372,800$45,800,500$1,427,7003.22% Confed. Park Plaza $28,173,300$28,959,500$786,2002.79% Market Mall $27,059,000$27,692,500$633,5002.34% River City Mall $20,428,900$21,092,800$663,9003.25% 8th Street $14,649,400$15,124,500$475,1003.24% Preston Crossing Walmart $14,124,900$14,584,000$459,1003.25% Stonebridge Power Centre $9,571,700$9,882,800$311,1003.25% Preston Crossing Rona $8,530,100$8,759,300$229,2002.69% The Effect on the Population

13. 2012 A PPEALS P ANEL - CITY OF S ASKATOON Statistical Effect of the Change 13 Statistical Measures Cap Rate 8.26% Cap Rate 8.00% ASR0.9950.990 COD5.8%6.3%

14. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON 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. The Precedent Set

15. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON 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? Circle Centre BOR 2010 Appeal

16. A 2012 A PPEALS P ANEL - CITY OF S ASKATOON 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. Circle Centre BOR Hearing

17. 2012 A PPEALS P ANEL - CITY OF S ASKATOON 17 201120102009 Vacancy Allowance Change -$8,990 AAC Appeal 2009-0143 2009-0143 Result Cap Rate -0.26% Power Centre Cap Rate 8.00% Enclosed Mall Cap Rate 8.00% Inventory Value Increased +$11,805,411 Circle Centre Increased +$226,200 Doing the Math

18. 2012 A PPEALS P ANEL - CITY OF S ASKATOON The Saga Continues 18 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 A PPEALS P ANEL - CITY OF S ASKATOON 19 Questions?