A recent Illinois Appellate Court decision (Gateway-Walden, LLC v. Maria Pappas, County Treasurer – 2018 Ill.App. (1st) 162714-U held that a taxpayer’s purchase of a multi-tenant office building from a bank who took title of the property after a failure by the mortgagor to pay its mortgage was considered to be an arm’s length market transaction. The mortgagee bank, Wells Fargo, made a credit bid at the conclusion of the foreclosure case and took title. Marc Realty created an entity Gateway-Walden, LLC, who made an offer to purchase the property for $7.3 million in January, 2012. Wells Fargo accepted this offer after considering a number of offers. In 2011, the subject property, as assessed by the County Assessor was valued at $10.4 million and the Plaintiff, Gateway-Walden filed a valuation objection (2011 Obj. No. 13 COTO 3720) in Cook County Circuit Court, County Division challenging the subject’s 2011 valuation. Plaintiff had an appraisal prepared which supported a fair market value of $7.5 million. The property was 29% vacant in 2011. Plaintiff’s appraiser, Eric Enloe of Integra Appraisal, described the subject office building as a “B” or “B/C” graded office building and his valuation was based on a leased fee interest in the property. The Defendant, presented an appraisal by Mr. Stephen Jackson who valued the subject property at $12 million as of January 1, 2011. Similar to the Integra Appraisal, Mr. Jackson used the Income Capitalization Approach to Value supported by the Sales Comparison Approach to Value in deriving the subject’s market value. Mr. Jackson did not give weight to the $7.3 million sale in January, 2012, because he asserted that the sale was not a market transaction. In his appraisal, he used “B” or “A/B” buildings to base their Income Capitalization Approach and Sales Comparison Approaches to Value. Mr. Jackson also used pre-recession sales. In contrast, Plaintiff’s appraiser, Mr. Enloe used a discounted cash flow analysis to base his Income Capitalization Approach. After trial, the Circuit Court entered judgment in favor of the Plaintiff and determined the subject’s valuation at $7.3 million. The Circuit Court’s holding stated that there was credible testimony and evidence produced at trial to support that the sale in January, 2012 was an arm’s length transaction between a willing buyer and seller which was the product of constant and sophisticated negotiations. The Plaintiff proved their valuation by “clear and convincing evidence” as required by the Illinois Property Tax Code.
On appeal, the Illinois Appellate Court upheld the trial court’s ruling and stated that evidentiary rulings are largely within the discretion of the trial court and will not be reversed unless they are against the manifest weight of the evidence or as a result of an abuse of the trial court’s discretion. The Appellate Court, Fourth Division did not find such an abuse of discretion. The Appellate Court added that Plaintiff’s appraiser, Mr. Enloe used the Sales Comparison Approach to Value which is the preferred valuation approach under Illinois law because it relies on actual sales data. Mr. Enloe used sales comparables that included multi-tenant buildings with existing leases and his leased fee valuation was accepted by the trial court as they were described as “realistic comparables” to derive the subject’s fair market value. The Appellate court held, consistent with the holding in People ex rel. Korzen v. Belt Ry. Co. of Chicago, 37 Ill.2d 158, 161 (1967) that the recent sale of the subject property was practically conclusive evidence of a land’s value. The law does not favor only arm’s length sales that occur on precisely the day of the relevant tax year. The subject was purchased in January, 2012. The Appellate Court also accepted Plaintiff’s appraiser’s use of a discounted cash flow analysis in its income capitalization approach to value as a matter of law.
Overall, this case stands for the principle that a sale by a bank to a willing buyer was an arm’s length market transaction and should not be discounted outright in determining a property’s correct market valuation for purposes of establishing a fair assessment.