Marion County, Simon tangle over valuation of Indianapolis malls

Arguments in two cases before the Indiana Tax Court in recent weeks featured wildly divergent views of the valuation of two Indianapolis shopping malls that have seen better days.

The Marion County assessor argues the cases represent far more than just determining whether the assessments of Washington Square and Lafayette Square for property-tax purposes were lowballed. In both cases, the Indiana Board of Tax Review sided with the mall owners at the time, Indianapolis-based Simon Property Group or a subsidiary.

Assessor’s office attorney John C. Slatten seized on a finding in the Indiana Board of Tax Review’s final determination that lowered the assessed value of Washington Square for the 2006-2010 assessment years. While the board sided with Simon’s appraisers, it wrote the methods used to arrive at the value “were not supported by his evidence and he made income and expense assumptions that seemed designed to value property at the lowest possible rate.”

“It would be a novel finding then in Indiana that a totally flawed appraisal can support a reduction of value,” Slatten argued to Tax Court Judge Martha Blood Wentworth in Marion Co. Assessor v. Washington Square Mall, LLC, et al., 49T10-1211-TA-70.

“If the court upholds this case, these are bad appraisals, and that’s the takeaway,” Slatten argued.

Ice Miller LLP attorney Paul M. Jones Jr. represented Simon interests in both cases. He said the board justified its findings, that it found fault in all the appraisals before it and didn’t abuse its discretion.

“This is a simple case that can be decided quickly,” Jones argued. He disputed that the flaws in the Washington Square appraisal were serious and said the board exercised its right to determine which appraisal was most persuasive.

“The board properly weighed the evidence and gave more weight to the taxpayer’s assessment,” he said. “It’s also not surprising the board arrived at the decision it did.”

Wentworth noted that the board also explained its rationale, and she challenged Slatten’s suggestion that the findings were “flawed in every approach.”

“You can’t look in isolation and say the board just completely eviscerated the probative value (of appraisals),” Wentworth said. But Slatten said that when presented with defective assessments, the tax review panel should have deferred to the assessments affirmed by the Marion County Property Tax Assessment Board of Appeals.

That board determined Washington Square’s total assessment for the 2010 tax year, for instance, was more than $36.5 million. But the Indiana Tax Review Board reduced that assessment to $9.5 million.

“This particular property is struggling,” Jones said, noting that Simon’s appraiser addressed issues from a high rate of tenant vacancy to condition issues, such as a bad roof. “I think it’s not surprising why the board found that evidence was more persuasive.”

“For this court to overturn the Indiana board decision in this case, it would have to get into the business of reweighing the evidence,” he told Wentworth.

Lafayette Square was sold in 2007 for $18 million to Ashkenazy Acquisition Corp. in 2007 after a tax appeal began on the property.(IL file photo)

Jones said Simon also presented evidence that the shopping center wouldn’t attract the interest of real estate investment trust giants similar to Simon as potential buyers.

Wentworth challenged Jones on whether that should have been a factor in the assessment. “Even though in reality an entrepreneurial investor with a new focus might be the only buyer you would get, you still have to meet the market value in use definition,” she said. Jones replied that while sale prospects were considered, the property was valued in Simon’s assessment as a regional mall.

Sale prices also factored into Slatten’s arguments. Simon sold Lafayette Square for $18 million to Ashkenazy Acquisition Corp. in 2007 after a tax appeal began on that property. He argued that Washington Square is considered a much more valuable property, which makes the $9.5 million assessment for 2010 questionable.

“Lafayette Square sold for twice as much, so you know the value’s low,” he said. “We need to value (Washington Square) as the value that it has to the owner.”

Slatten told Indiana Lawyer it’s unusual for the assessor’s office to push a case to Tax Court, and typically such disputes are resolved before this third-level appeal. “It’s a continuing problem we have with them,” he said of some Simon properties, “appraisals that just don’t make any sense.”

Jones could not be reached for comment. Ice Miller associate Matthew J. Ehinger, who also represents Simon in the litigation, said he could not comment on the pending cases.

Regarding the Lafayette Square case, Marion Co. Assessor v. Simon DeBartolo Group, LP, et al., 49T10-1211-TA-76, Jones said at oral argument that the Tax Court should affirm valuations of $15.2 million and $16.4 million for the 2006 and 2007 years, which represent assessments that employed a trending analysis based on the sale price.

That’s a more logical approach than the assessor’s proposed valuations that in one year was more than twice as high. “Or is it logical the alternative the assessor would suggest, that this same publicly traded group, the world’s largest … would sell a property for a 30 percent or a 50 percent discount like one of the retailers at the mall when they’re trying to unload things at the end of a season,” Jones argued.

“It’s outrageous that the assessor’s value – $36 million and $30 million – represent the market value in use when the property sold for $18 million.”

In the case of Lafayette Square, neither side agreed with the Marion County Property Tax Assessment Board of Appeals, which set assessments at $28 million for 2006 and $20 million for 2007.

But Slatten said the sale price analysis in determining assessment value was insufficient. “It’s too remote from the valuation data of 2005 (for the 2006 assessment value) and goes against generally accepted valuation principles,” he argued.

“It doesn’t indicate the market value in use,” Slatten said of the purchase price versus the assessment standard. “It indicates what someone was willing to pay for it.”

But Jones argued Wentworth should affirm Simon’s Lafayette Square assessments that were approved by the Tax Review Board, noting that the sale was exposed to the market, which determined its value.

“If the standard is value for its use,” he said, “and you have a property that is marketed and sold and then market factors are used to trend that, then that is sufficient.”•