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Ventas Realty Limited Partnership v. City of Dover

Supreme Court of New Hampshire, Strafford

January 10, 2020

VENTAS REALTY LIMITED PARTNERSHIP
v.
CITY OF DOVER

          Argued: October 23, 2019

          Hamblett & Kerrigan, P.A., of Nashua (Kevin P. Rauseo and Andrew J. Piela on the brief, and Mr. Rauseo orally), for the plaintiff.

          Mitchell Municipal Group, P.A., of Laconia (Walter L. Mitchell and Laura Spector-Morgan on the brief, and Ms. Spector-Morgan orally), for the defendant.

          HICKS, J.

         The plaintiff, Ventas Realty Limited Partnership (Ventas), appeals an order of the Superior Court (Howard, J.) denying its request for an abatement of the real estate taxes it paid the defendant, the City of Dover (City), for the 2014 tax year. We affirm.

         The trial court found, or the record establishes, the following facts. The subject real estate consists of a 5.15-acre site containing a skilled nursing facility serving both short-term and long-term patients, two garages, and a parking lot. At issue is the City's April 1, 2014 assessment of the real estate at a value of $4, 308, 500. Ventas alleges that it timely applied to the City for an abatement of its 2014 taxes. The City presumably denied or failed to act upon the request, and Ventas, thereafter, petitioned the superior court for an abatement pursuant to RSA 76:17 (Supp. 2018), alleging that the City had unlawfully taxed the property in excess of its fair market value.

         The trial court held a two-day bench trial at which the parties' experts testified. Ventas's expert was Raymond A. Dennehy, III, president of Health Care Valuation Advisors, Inc. The City's expert was Melanie Kosich, a former nursing home administrator and director of Tellatin, an entity affiliated with Integra Healthcare Services. The parties stipulated that in 2014, the City used an equalization ratio of 95.1%.

         Both experts opined that the property's highest and best use is as a skilled nursing facility. The experts also agreed that the most reliable method for determining the property's fair market value is the income capitalization method, although the City's expert also completed analyses under the sales comparison and cost approaches. Both experts examined the same comparable properties and they also used similar definitions of "fair market value." In his May 2016 report, Dennehy concluded that the property's fair market value as of April 1, 2014, at its highest and best use as a skilled nursing facility, was $1, 700, 000. In her October 2017 report, Kosich opined that the property's fair market value as of April 1, 2014, at its highest and best use as a skilled nursing facility, was $4, 700, 000.

         The main difference between the approaches of the two experts is that Kosich used both market projections and the property's actual income and expenses from 2012, 2013, and 2014 to forecast the property's future net income, while Dennehy did not. Dennehy used the property's actual income and expenses for the 11 months before the April 1, 2014 valuation date, without any market-based adjustments.

         Despite their different approaches, the experts gave similar estimates of the property's projected gross income for tax year 2014: Kosich's estimate was $10, 063, 865, and Dennehy's estimate was $10, 147, 068. Both experts also used similar capitalization rates: Kosich used a 13.5% capitalization rate, and Dennehy used a 12.6% capitalization rate. At trial, Ventas stipulated to Kosich's capitalization rate.

         The experts differed greatly in their estimates of the property's projected gross operating expenses for tax year 2014. Dennehy relied upon the property's actual operating expenses for the 11 months before the April 1, 2014 valuation date, opining that the expenses for those months, annualized to represent a full year, "provide[d] the most reliable indication of the subject's stabilized operating expenses." He calculated the property's gross operating expenses to be $9, 936, 601. Dennehy observed that the subject property's operating expenses are higher per patient day than in comparable properties, but opined that "this reflects the lower occupancy at the subject than the comparables, which results in higher expenses per patient day."

         By contrast, after examining the expenses of comparable facilities and applying an inflation factor based upon market trends, Kosich assigned values to the different categories of operating expenses. For example, as to nursing expenses, Kosich used the property's actual nursing expenses in 2013 and 2014 for each category of nursing professional and compared those expenses with the 2013 nursing expenses of five comparable properties. She took into account the ratio of total revenue that nursing typically represents for a skilled nursing facility (30% to 45%) and applied an inflation rate to nursing expenses based upon market trends. Based upon those figures, she assigned a value to the property's forecasted nursing expenses that fell within its actual 2013 and 2014 expenses and the average expenses of the comparable properties. She conducted a similar analysis for other categories of operating expenses. Ultimately, Kosich estimated the property's total forecasted operating expenses to be $9, 016, 402.

         The trial court concluded that "Dennehy's approach . . . does not accurately reflect the overall value of the property based on forecasted net income the property would have generated on the open market in 2014," and, thus, decided that Ventas had not "sufficiently proved the property's fair market value under the income capitalization approach." Accordingly, the trial court ruled that Ventas failed to meet its burden of proof to obtain an abatement for tax year 2014. This appeal followed.

         To succeed on its tax abatement claim, Ventas had the burden of proving by a preponderance of the evidence that it paid more than its proportional share of taxes for tax year 2014. See Porter v. Town of Sanbornton, 150 N.H. 363, 367 (2003). "To carry the burden of proving disproportionality, the taxpayer must establish that the taxpayer's property is assessed at a higher percentage of fair market value than the percentage at which property ...


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