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VOL. 119 | NO. 176 | Wednesday, September 28, 2005

Wolfchase Galleria Withdraws Tax Appeal

Mall appraisal dispute garners legal attention nationwide

By Andy Meek

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A dispute over the appraisal of Wolfchase Galleria, the largest single source of property taxes in Shelby County, is officially over.

Tax representatives for the 1.1 million-square-foot retail behemoth have withdrawn an appeal to the state assessment appeals commission after taking their case before an administrative judge in January. They were working to get the $132 million appraisal for Wolfchase, which is owned by Simon Property Group Inc., nearly cut in half to about $73 million. Simon also owns Raleigh Springs Mall and Oak Court Mall in Memphis.

City/county tax bill. In March, state Administrative Judge Mark Minsky struck down the linchpin of their case - that the mall's appraisal should be reduced partly because of the value of the Simon brand name. Instead, Minsky ordered that the mall's most recent value be reduced to about $115 million.

The mall's current tax bill shows why the case is important. Wolfchase lies within the Memphis city limits, which means it generates city and county taxes. Its combined tax bill is $3.4 million. It would have been only $2.1 million had the appeal been won.

"Their tax reps said that they met with the ownership in Indianapolis, the Simon group, and they discussed it and felt like, for various reasons, they'd decide not to pursue it," said Greg Moody, director of appraisals and reappraisals for Shelby County Assessor Rita Clark's office. "And in my opinion, the big smoking gun on that whole tax methodology is that the only time you saw it - you didn't see it when somebody was lending or selling a property; you just saw it in tax appeal situations. So for us here, I think it's the end of that for a while."

Far-reaching effects. Other businesses, such as hotels and golf courses, have tried to make the same case as Wolfchase, but they may have a harder time doing so in the future. Demonstrating how far-reaching the issue is, Moody said the Wolfchase decision already has been cited as precedent in a similar property value appeal in Canada.

"... This is really an issue for a lot of things: mini-storage, offices, hotels, golf courses - anything where there's a brand name associated with it."
- Greg Moody
director of appraisals and reappraisals, Shelby County Assessor's office

In that case, Fairmont Hotels & Resorts appealed the 2001 and 2002 assessed values for the company's Fairmont Empress Hotel, a luxury hotel on the banks of the inner harbor in Victoria, British Columbia. The case, referred to as Fairmont Hotels v. Area 01, went before British Columbia's property assessment appeal board, which drew precedence from Minsky's ruling in the appeal by Wolfchase Galleria Ltd. Partnership on March 16.

Independent appraisal. Clark said her office wasn't given a reason why Wolfchase's tax reps withdrew their appeal. But after Minsky's ruling in March, appraiser David Lennhoff - who did an independent study of Wolfchase Galleria for the mall - insisted that his approach was proper.

Lennhoff - president of the appraisal division of Delta Associates, a national commercial real estate appraisal firm - said revenue from kiosk businesses inside the mall should be subtracted from the mall's income stream.

"What mall owners assemble is an incredibly sophisticated business within real property," he said. "The issue emerges for appraisers when an appraisal problem - because of the law, usually - requires an estimate of just part of the total enterprise in an assessment situation."

Lennhoff is scheduled as a featured speaker at an International Association of Assessing Officers symposium in November that looks at that topic, which has been referred to as "business enterprise value." Clark said her office is still deciding whether to send a Shelby County representative to the conference.

"It's an issue that needs to be laid to rest," she said.

National attention. Moody said he hasn't seen any other appeal cases that attempt to use the same methodology as the Wolfchase case. But he thinks a different outcome would have triggered a flood of appeals. Fearing a precedent, Clark's office held off sending out reappraisal notices for other retail properties until Minsky's decision came in March.

Moody said the dispute in Shelby County generated phone calls and nationwide attention.

"It was really kind of amazing, the folks from different parts of the country calling to help out, saying, 'You can't let this keep happening,'" Moody said. "Because this is really an issue for a lot of things: mini-storage, offices, hotels, golf courses - anything where there's a brand name associated with it."

Clark said the decision represents a major victory for her office.

"I just want to say how proud I am of this staff," she said. "We have the best staff, and when we came up against somebody that big - I know they're not known in Shelby County, but in the appraisal world, what they say has authority. And this little old Shelby County team, we could not hire an expert witness because we did not have time.

"Some appraisers got in touch with Greg and helped him focus his attention on things they knew would be brought up, and they did it - the staff really carried the ball."

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 52 374 8,123
MORTGAGES 52 433 9,632
FORECLOSURE NOTICES 22 103 1,461
BUILDING PERMITS 218 906 17,513
BANKRUPTCIES 45 252 5,658
BUSINESS LICENSES 0 143 3,091
UTILITY CONNECTIONS 24 152 3,402
MARRIAGE LICENSES 38 158 1,846

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