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Date: 06-19-2018

Case Style:

WEST CARROLLTON CITY SCHOOLS BOARD OF EDUCATION v. MONTGOMERY COUNTY BOARD OF REVISION and MCDONALD’S USA, LLC

Case Number: 27679

Judge: Rosemarie Hall

Court: COURT OF APPEALS OF OHIO SECOND APPELLATE DISTRICT MONTGOMERY COUNTY

Plaintiff's Attorney: KAROL C. FOX
MARK H. GILLIS

Defendant's Attorney: Charles L. Bluestone, Esq
PATRICK J. HEERY, ESQ.

Description: The property at issue is a 1.383-acre parcel located at 741 East Dixie Drive
in West Carrollton, Ohio. The property is improved with a 4,470-square foot building,
constructed in 2005, that houses a McDonald’s restaurant. For tax year 2014 the
Montgomery County Auditor valued the property at $1,308,710. McDonald’s filed a
complaint with the Board of Revision (BOR) seeking to reduce the value to $675,000. The
West Carrollton City Schools Board of Education (BOE) filed a countercomplaint, asking
the BOR to retain the auditor’s original valuation.
{¶ 3} The BOR held a hearing. Stephen J. Weis, a certified appraiser retained by
McDonald’s, testified at the hearing and submitted a written appraisal report. He
appraised the property at $715,000 as of January 1, 2014. McDonald’s amended its
complaint to conform with Weis’s appraisal. The BOE cross-examined Weis but did not
present any evidence of its own. The BOR reduced the property’s value to $715,000. The
BOE appealed to the BTA.
{¶ 4} At the BTA hearing, the BOE presented the testimony and written appraisal
report of Thomas D. Sprout, a certified appraiser. Sprout valued the property at
$1,860,000. 1 Apparently, the recording device used at the BOR hearing stopped
1 As the BTA noted in its decision, it “held a consolidated merit hearing on this matter, as well as another matter involving a McDonald’s restaurant (BTA No. 2015-2319), which


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recording during Weis’s cross-examination. McDonald’s asked the BTA to supplement
the record by having Weis recreate the cross-examination portion of his testimony. The
BTA agreed and held another hearing at which Weis was cross-examined on his
appraisal.
{¶ 5} The BTA issued a written decision finding Sprout’s analysis superior to
Weis’s, and the BTA adopted the $1,860,000 valuation proposed by the BOE.
{¶ 6} McDonald’s appealed.
II. Analysis
{¶ 7} McDonald’s presents seven assignments of error. Each assignment of error
challenges the BTA’s assessment of the competing appraisal reports, the specific
calculations contained in them, or the relative qualifications of the appraisers.
First Assignment of Error
The Board of Tax Appeals acted unreasonably and unlawfully, and abused
its discretion, when it failed to find that Appellant’s appraisal evidence
constituted competent and probative evidence of the market value of the
subject property.
Second Assignment of Error
The Board of Tax Appeals acted unreasonably and unlawfully, and abused
its discretion, when it failed to find that Appellant met its burden of proof,
when the record contained reliable and probative evidence to support
involved the same counsel, same appraisers and substantially the same appraisal reports. (The cases were not formally consolidated because they involved unaffiliated property owners.)” The other case is the subject of a separate appeal (Appellate Case No. 27686).


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Appellant’s market value of the subject property.
Third Assignment of Error
The Board of Tax Appeals acted unreasonably and unlawfully, and abused
its discretion, by finding the appraisal analysis submitted by Appellee West
Carrollton City Schools Board of Education to be more competent and
probative evidence of the subject property’s market value than the appraisal
analysis proffered by Appellant.2
Fourth Assignment of Error
The Board of Tax Appeals acted unreasonably and unlawfully, and abused
its discretion, by finding the highest and best use analysis advanced by
Appellee West Carrollton City Schools Board of Education more appropriate
than the analysis proffered by Appellant.
Fifth Assignment of Error
The Board of Tax Appeals acted unreasonably and unlawfully, and abused
its discretion, in considering the present use of the subject property in
determining its market value.
Sixth Assignment of Error
The Board of Tax Appeals acted unreasonably and unlawfully, and abused
its discretion, in finding the capitalization rate advanced by Appellee West
2 The third assignment of error is found only in McDonald’s notice of appeal. The only mention of the third assignment of error in McDonald’s merit brief is a parenthetical statement at the end of the argument supporting the first two assignments of error saying that we need not rule on the third assignment of error if we agree with the first two assignments of error. Although we may disregard it because McDonald’s failed to argue it separately, see App.R.12(A)(2), our review covers the issue that the assignment of error appears to raise.


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Carrollton City Schools Board of Education, rather than the rate adopted by
Appellant, more appropriate to use in calculating the subject property’s
market value under the income capitalization approach to value.
Seventh Assignment of Error
The Board of Tax Appeals acted unreasonably and unlawfully, and abused
its discretion, in continuing to recognize Appellee West Carrollton City
School Board of Education’s appraiser as an expert witness in view of the
testimony and evidence proffered at the BTA hearing.
{¶ 8} McDonald’s primary argument on appeal is that the BTA should have
adopted Weis’s valuation. We begin by reviewing the standards that apply to BTA
decisions.
A. Standards of review
{¶ 9} When a case is appealed to the BTA from a board of revision, the appellant
has the burden of proving its right to a decrease or increase in value from the value found
by the board of revision. Shinkle v. Ashtabula Cty. Bd. of Revision, 135 Ohio St.3d 227,
2013-Ohio-397, 985 N.E.2d 1243, ¶ 24. This means that the “appellant must come
forward and demonstrate that the value it advocates is a correct value. Once competent
and probative evidence of value is presented by the appellant, the appellee who opposes
that valuation has the opportunity to challenge it through cross-examination or by
evidence of another value.” (Citation omitted.) EOP-BP Tower, L.L.C. v. Cuyahoga Cty.
Bd. of Revision, 106 Ohio St.3d 1, 2005-Ohio-3096, 829 N.E.2d 686, ¶ 6.
{¶ 10} The BTA, itself, as a taxing authority, has an independent duty to weigh
evidence and make findings, and the BTA reviews the administrative decisions of boards


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of revision de novo as to both fact and law. MacDonald v. Shaker Hts. Bd. of Income Tax
Rev., 144 Ohio St.3d 105, 2015-Ohio-3290, 41 N.E.3d 376, ¶ 21; Coventry Towers, Inc.
v. City of Strongsville, 18 Ohio St.3d 120, 122, 480 N.E.2d 412 (1985). Under R.C.
5717.01, the BTA has “three options when hearing an appeal: the board may confine itself
to the record and the evidence certified to it by the board of revision, hear additional
evidence from the parties, or may make such other investigation of the property as is
deemed proper.” Coventry Towers at 122.
{¶ 11} Under what is called the Bedford rule, “ ‘when the board of revision has
reduced the value of the property based on the owner’s evidence, that value has been
held to eclipse the auditor’s original valuation,’ and the board of education as the appellant
before the BTA may not rely on the latter as a default valuation.” Dublin City Schools Bd.
of Edn. v. Franklin Cty. Bd. of Revision, 147 Ohio St.3d 38, 2016-Ohio-3025, 59 N.E.3d
1270, ¶ 6, referencing Bedford Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 115 Ohio
St.3d 449, 2007-Ohio-5237, 875 N.E.2d 913. (Other citation omitted.) Thus, when the
board of revision adopts a new value based on an owner’s evidence, the burden of going
forward shifts to the board of education on appeal to the BTA. Id. The board of education
then has the burden to establish a new value, whether that be the valuation of the auditor
or another value. Id. at ¶ 7.
{¶ 12} With respect to our review of BTA decisions, we note that McDonald’s notice
of appeal was filed before the effective date of recent amendments to R.C. 5717.04, which
became effective on September 29, 2017. See Am. Sub. H.B. 49, 2017 Ohio Laws File
14. Before the amendments, parties had the option of appealing decisions of the BTA to
the Supreme Court of Ohio, as well as to the court of appeals for the county in which the


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taxed property was situated. But the statute was amended to eliminate initial appeals to
the Supreme Court of Ohio, and the court of appeals in which a notice of appeal has been
filed now has exclusive jurisdiction.3 See Am. Sub. H.B. 49, 2017 Ohio Laws File 14, Part
15.
{¶ 13} R.C. 5717.04, as amended, states:
If upon hearing and consideration of such record and evidence the
applicable court decides that the decision of the board appealed from is
reasonable and lawful it shall affirm the same, but if the court decides that
such decision of the board is unreasonable or unlawful, the court shall
reverse and vacate the decision or modify it and enter final judgment in
accordance with such modification.4
{¶ 14} The general standards for reviewing BTA decisions are well settled. If the
BTA’s decision is both “reasonable and lawful,” the reviewing court must affirm. NWD 300
Spring, L.L.C. v. Franklin Cty. Bd. of Revision, 151 Ohio St.3d 193, 2017-Ohio-7579, 87
N.E.3d 199, ¶ 13, citing R.C. 5717.04. Nonetheless, a reviewing court does not hesitate
3 An exception was made for appeals in which a party files a petition requesting a transfer of jurisdiction to the Supreme Court of Ohio. The petition must be filed within 30 days after the notice of appeal has been filed with the appropriate court of appeals, and the petition must be filed with the Supreme Court of Ohio. If the appeal “involves a substantial constitutional question or a question of great general or public interest,” the Supreme Court of Ohio may approve the petition and order the appeal to be taken directly to the Supreme Court. However, if jurisdiction is not transferred, the appeal proceeds in the court of appeals. See R.C. 5717.04, as amended in 2017. The remainder of the amendments to R.C. 5717.04 are non-substantive, except for a line that was added which stated that “[a]s used in this section, ‘taxpayer’ includes any person required to return any property for taxation.”

4 The amendment to this paragraph is non-substantive, as the only change under the 2017 revision was the insertion of the word “applicable.” Am. Sub. H.B. 49, 2017 Ohio Laws File 14, Part 15. Thus, the standard of review is unchanged.


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to reverse BTA decisions that are based on incorrect legal conclusions. See, e.g., Satullo
v. Wilkins, 111 Ohio St.3d 399, 2006-Ohio-5856, 856 N.E.2d 954, ¶ 14, citing Gahanna
Jefferson Local School Dist. Bd. of Edn. v. Zaino, 93 Ohio St.3d 231, 232, 754 N.E.2d
789 (2001). Consequently, questions of law are reviewed de novo. Dublin City Schools
Bd. of Edn. v. Franklin Cty. Bd. of Revision, 139 Ohio St.3d 193, 2013-Ohio-4543, 11
N.E.3d 206, ¶ 13; Terraza 8, L.L.C. v. Franklin Cty. Bd. of Revision, 150 Ohio St.3d 527,
2017-Ohio-4415, 83 N.E.3d 916, ¶ 7.
{¶ 15} Review of BTA decisions “is guided by the premise that ‘ “[t]he fair market
value of property for tax purposes is a question of fact, the determination of which is
primarily within the province of the taxing authorities.” ’ ” NWD 300 Spring at ¶ 13, quoting
EOP-BP Tower, 106 Ohio St.3d 1, 2005-Ohio-3096, 829 N.E.2d 686, at ¶ 17. (Other
citation omitted.) The BTA’s factual decisions are upheld “if the record contains reliable
and probative evidence supporting the BTA’s determination.” Dublin City Schools Bd. of
Edn., 139 Ohio St.3d 193, 2013-Ohio-4543, 11 N.E.3d 206, at ¶ 13, citing Satullo at ¶ 14.
Deference is also given to BTA findings about the weight of the evidence, as long as the
findings are supported by the record. Terraza 8 at ¶ 7, citing Olmsted Falls Bd. of Edn. v.
Cuyahoga Cty. Bd. of Revision, 122 Ohio St.3d 134, 2009-Ohio-2461, 909 N.E.2d 597, ¶
27.
{¶ 16} Article XII, Section 2 of the Ohio Constitution requires property to be “taxed
by uniform rule according to value.” “This provision generally requires a real-property
valuation to ascertain ‘the exchange value’ of the property.” (Citation omitted; emphasis
sic.) Johnston Coca-Cola Bottling Co. v. Hamilton Cty. Bd. of Revision, 149 Ohio St.3d
155, 2017-Ohio-870, 73 N.E.3d 503, ¶ 13. As a general rule, “the value or true value in


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money of any property is the amount for which that property would sell on the open market
by a willing seller to a willing buyer. In essence, the value of property is the amount of
money for which it may be exchanged, i.e., the sales price.” State ex rel. Park Inv. Co. v.
Bd. of Tax Appeals, 175 Ohio St. 410, 412, 195 N.E.2d 908 (1964). Actual sales are the
best way to determine value, when they are available. (Citations omitted.) Terraza 8, 150
Ohio St.3d 527, 2017-Ohio-4415, 83 N.E.3d 916, at ¶ 9.
{¶ 17} But where no recent sales of the property have occurred, the BTA has wide
latitude in the matters that it can consider and broad discretion in the weight that it
attaches to expert testimony. (Citations omitted.) Wynwood Apts., Inc. v. Bd. of Revision
of Cuyahoga Cty., 59 Ohio St.2d 34, 35, 391 N.E.2d 346 (1979). When the BTA reviews
appraisals, it “ ‘is vested with wide discretion in determining the weight to be given to the
evidence and the credibility of the witnesses that come before it.’ ” NWD 300 Spring, 151
Ohio St.3d 193, 2017-Ohio-7579, 87 N.E.3d 199, at ¶ 13, quoting EOP-BP Tower, 106
Ohio St.3d 1, 2005-Ohio-3096, 829 N.E.2d 686, at ¶ 9. (Other citation omitted). Reviewing
courts also apply an abuse of discretion standard to BTA decisions on witness credibility
and the weight their testimony is given. Id. at ¶ 14. An abuse of discretion refers to “an
unreasonable, arbitrary, or unconscionable attitude.” Renacci v. Testa, 148 Ohio St.3d
470, 2016-Ohio-3394, 71 N.E.3d 962, ¶ 32, citing J.M. Smucker, L.L.C. v. Levin, 113 Ohio
St.3d 337, 2007-Ohio-2073, 865 N.E.2d 866, ¶ 16. BTA factual determinations are not
disturbed “ ‘ “if the record contains reliable and probative support.” ’ ” Meijer Stores Ltd.
Partnership v. Franklin Cty. Bd. of Revision, 122 Ohio St.3d 447, 2009-Ohio-3479, 912
N.E.2d 560, ¶ 17, quoting Satullo, 111 Ohio St.3d 399, 2006-Ohio-5856, 856 N.E.2d 954,
at ¶ 14, quoting Am. Natl. Can Co. v. Tracy, 72 Ohio St.3d 150, 152, 648 N.E.2d 483


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(1995).
{¶ 18} Here, the BTA weighed the probative value of two appraisals and found one
to be more probative than the other. “This decision rests within the core of the BTA’s
competence as fact-finder and deserves the highest degree of deference from this court.”
Meijer at ¶ 18. Most of the assignments of error allege deficiencies in Sprout’s appraisal
and testimony. “But determining the probative value of an appraiser’s testimony lies within
the competence of the BTA,” id. at ¶ 20, and we will defer to the BTA’s determinations as
to these matters.
B. The competing appraisals and the BTA’s findings
{¶ 19} Each expert—Stephen Weis for McDonald’s and Thomas Sprout for the
BOE—performed a comprehensive valuation of the subject property, a McDonald’s
restaurant. They both valued the property at its “highest and best use,” a concept that is
a “crucial element in determining the value of property in the overall market.” Rite Aid of
Ohio, Inc. v. Washington Cty. Bd. of Revision, 146 Ohio St.3d 173, 2016-Ohio-371, 54
N.E.3d 1177, ¶ 34. “Highest and best use” “ ‘is that use which will generate the highest
net return to the property over a reasonable period of time.’ ” Id., quoting IAAO, Property
Assessment Valuation 31 (2d Ed.1996) (International Association of Assessing Officers).
{¶ 20} Both experts also analyzed the property’s value using the same two
approaches—the sales-comparison approach and the income-capitalization approach.
These different and independent approaches are “two accepted methods of analysis.”
Johnston Coca-Cola Bottling Co., 149 Ohio St.3d 155, 2017-Ohio-870, 73 N.E.3d 503, ¶
15. The sales-comparison approach values the subject property by comparing it with
similar, or comparable, properties that have recently sold and that reflect the subject


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property’s market value. The sale price of each comparable property is adjusted for
factors like market conditions at the time of sale, building size, location, and quality and
condition. Based on the adjusted sales prices, a market price for the subject property is
determined. In the income-capitalization approach, the value of the subject property is the
present worth of anticipated future income derived from the property. This is calculated
by estimating the property’s net annual operating income and then applying a rate of
capitalization that reflects the relative certainty of continuing to earn that income and the
risks of ownership. The net operating income is based on the lease rates of comparable
properties. And the appropriate capitalization rate is determined by looking at the
capitalization rates of similar properties. Because the purpose of the valuation here is to
determine the value for tax purposes, both experts also conducted a tax additur analysis.
This analysis removes real estate taxes from the net-operating-income calculation and
adds a tax additur to the capitalization rate “to reflect the percentage amount of the
subject’s value that is paid in tax each year.” (Sprout Appraisal Report, p. 46; see also
Weis Appraisal Report, p. 45-46).5 After the experts analyzed the property’s value under
each approach, they reconciled the two values into a final opinion of value.
i. Weis’s appraisal
5 A “tax additur” is a component of the capitalization rate that accounts for the negative effect that property taxes have on the value of the property. When the amount of real estate taxes is unknown, such as when the taxes are in dispute, the appraiser develops an adjustment—a “tax additur”—that reflects the “effective tax rate” for the subject property; this percentage then is added to and becomes a component of the capitalization rate. Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 144 Ohio St.3d 324, 2015-Ohio-3633, 43 N.E.3d 387, ¶ 26-28, citing Worthington City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 140 Ohio St.3d 248, 2014-Ohio- 3620, 17 N.E.3d 537, ¶ 8, fn. 2.



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{¶ 21} Weis concluded that the best-and-highest use of the subject property here,
as improved, was as a “Restaurant.”6
{¶ 22} In his sales-comparison analysis, Weis selected six properties in
Montgomery County that had sold between 2012 and 2015. Five of the properties were
restaurants and one was a retail building. Three of the restaurants were fast-food
restaurants and two were sit-down. Three of the restaurants were vacant at the time of
sale, and the retail building was also vacant at the time of its sale. After making
adjustments to the sales prices, Weis derived adjusted values of the comparable
properties that ranged from $77.37 to $165.71 per square foot. He then concluded that
the market value of the subject property was $160 per square foot. Multiplying this square
footage value by the size of the subject property (4,470 sq. ft.) showed a rounded market
value of $715,000.
{¶ 23} For his income-capitalization analysis, Weis selected nine restaurant
properties in Montgomery County that were leased between 2012 and 2015. Based on
the adjusted lease rates of these properties, Weis determined that the subject property’s
net annual operating income was $59,612. Weis then determined that the appropriate
rate of capitalization was 8.25%. He based this figure on the subject property’s size,
location, and condition and on the capitalization rates for 32 retail properties in several
Ohio counties as well as national capitalization rates. Next, Weis determined that a tax
additur of 0.16% would be appropriate. He applied the adjusted capitalization rate to the
6 Weis concluded that, although the building had some elements of the McDonald’s design, if those items were removed, the building would come back as a regular, typicaluse, free-standing building. So he did not think that the property should be classified as “special purpose” property.


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net annual operating income to get a rounded value of $710,000.
{¶ 24} In his reconciliation of values, Weis gave the most weight to the sales
comparison value, “due to abundance of free standing retail building sales.” (Weis
Appraisal Report, p. 48). Weis concluded that the value of the subject property as of
January 1, 2014, was $715,000.
ii. Sprout’s appraisal
{¶ 25} Sprout concluded that the highest-and-best use of the property, as
improved, was as a “national fast food restaurant,” a little narrower than Weis’s highest
and-best use conclusion. (Sprout Appraisal Report, p. 19.)
{¶ 26} For his sales-comparison analysis, Sprout selected eight properties from
across Ohio that had sold between 2012 and 2015—three in the Dayton area, one in
Lebanon, one in Springfield, two in the Columbus area, and one in Mansfield. Six of the
properties were restaurants, occupied at the time of sale. One of the properties was a
vacant former restaurant in a poor location, which Sprout included to illustrate the sale of
what the subject property was not. After making adjustments to the sale prices of the
properties, Sprout determined that the market value of the subject property ranged from
$400 to $425 per square foot. He then multiplied these values by the subject property’s
square footage (4,470 sq. ft.) to arrive at a rounded value of between $1,790,000 and
$1,900,000.
{¶ 27} For his income-capitalization analysis, Sprout used eight comparison
properties from across Ohio—four in the Dayton area, one in Lebanon, one in Springfield,
one in Columbus, and one in Mansfield. Based on the adjusted lease prices of the
comparable properties, Sprout determined that the net annual operating income of the


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subject property was $165,904—more than 2½ times Weis’s income determination.
Sprout then concluded that the appropriate capitalization rate was 7.00%. He based this
rate on a band-of-investment analysis, the capitalization rates of the comparison
properties, and national rates. Sprout then found that a tax additur of 3.11% should be
added to the capitalization rate, giving an adjusted capitalization rate of 10.11%. He
applied the adjusted rate to the net operating income to get a rounded value of
$1,860,000.
{¶ 28} In his value reconciliation, in contrast to Weis, Sprout gave the most weight
to the income-capitalization value. He testified that he gave this value “[s]lightly more”
weight “just because these types of properties, the national fast food restaurants, there’s
a lot of data out there available for rents, and I think that would provide a more probative
* * * indication for value.” (July 12, 2016, BTA No. 2015-2357, Tr. 16). Sprout concluded
that the value of the subject property on January 1, 2014, was $1,860,000.
iii. The BTA’s decision
{¶ 29} The BTA found Sprout’s valuation analysis “to be the most competent and
probative evidence of value.” It found that his highest-and-best-use conclusion as a
national fast-food restaurant is “most appropriate.” And it found that Sprout’s “selection of
comparable properties, under both the sales comparison and income approaches to
value, best represented the market in which the subject property would operate.” “Sprout,”
said the BTA, “mostly relied upon comparables that were operating fast-food restaurants
and that continued to operate as fast-food restaurants after their transfer.” “Weis, on the
other hand, relied upon comparables that were dissimilar from the subject property, i.e.,
‘sit-down’ restaurants, at least one property that had been converted to a different use,


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and vacant properties.” The BTA said that this was a “crucial” difference that led Weis to
undervalue the property. As for the capitalization rate, the BTA found that Sprout’s rate
was “reflective of the subject property’s most likely use,” because it was based on other
fast-food restaurants. The BTA criticized Weis’s capitalization rate because “it was
derived from properties that were dissimilar from the subject properly, i.e., general retail,
instead of restaurant or fast-food restaurant properties.”
{¶ 30} After reviewing the evidence, the BTA concluded that the BOE had satisfied
its evidentiary burden on appeal. The BTA determined that the subject property’s value
as of January 1, 2014, was $1,860,000.
C. McDonald’s challenges to the BTA’s decision
{¶ 31} McDonald’s takes issue with the BTA’s decision, challenging it in five
primary ways. Fundamentally, McDonald’s argues that the BTA should not have given
the most weight to Sprout’s appraisal. McDonald’s also argues that the BTA’s highest
and-best-use finding is too narrow and that it improperly considered the property’s present
use. McDonald’s further argues that Weis’s capitalization rate is better supported than the
rate used by the BTA. Finally, McDonald’s argues that the BTA should not have
recognized Sprout as an expert.
{¶ 32} Again, our standard of review: “We must affirm the BTA’s decision if it is
reasonable and lawful. R.C. 5717.04. In making this determination, we must consider
legal issues de novo and defer to findings concerning the weight of evidence so long as
they are supported by the record.” (Citations omitted.) Pavilonis v. Cuyahoga Cty. Bd. of
Revision, Slip Opinion No. 2018-Ohio-1480, ¶ 8.
{¶ 33} The BTA here considered two competing opinions of value. Although


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facially they are widely divergent, the analysis leading to each value is well explained in
each appraiser’s written appraisal report. Many of McDonald’s arguments urge us to re
weigh the appraisal evidence presented to the BTA and reach a different conclusion. But
that is not our role.
i. The weight given Sprout’s valuation
{¶ 34} McDonald’s challenges the BTA’s determination that Sprout’s analysis is
entitled to more weight than Weis’s analysis. Specifically, McDonald’s disputes the BTA’s
findings that Sprout used a more appropriate methodology to value the property, that
Sprout’s selection of comparable properties “best represents the market in which the
subject property would operate,” and that Sprout’s qualitative adjustments are more
probative than Weis’s qualitative and quantitative adjustments. McDonald’s also argues
that the BTA should not have accepted the sales-breakpoint analysis in Sprout’s appraisal
report. And McDonald’s claims that Sprout’s appraisal methodology and analysis produce
inconsistent results.
Selection of comparable properties
{¶ 35} The appraisal reports and the appraisers’ testimony describe the manner in
which comparable properties were selected. Determining which appraiser selected the
best comparable properties was the crux of the BTA’s decision. On the one hand, Weis
generally placed a high priority on using properties within Montgomery County, but this
limited the number of properties that were similar to the subject property in other ways,
such as the specific nature of the restaurant business (fast-food vs. sit-down restaurants),
and resulted in the inclusion of one property that was torn down after its sale and used
for a completely different purpose. On the other hand, Sprout chose properties from a


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wider geographical area, which led to more variations in locations, neighborhood,
population, and the like, but allowed him to more narrowly focus his comparisons on
operating fast-food restaurants.
{¶ 36} Further, although McDonald’s argument in its brief places great emphasis
on “location, location, location,” the BTA concluded that comparison of the properties
based on other factors was entitled to greater weight than geographical location. On the
whole, the BTA determined that Sprout’s comparable properties were more similar to the
subject property in characteristics and markets than Weis’s comparables, even if they
were located in a broader geographical area.
{¶ 37} The BTA gave its reasons for concluding that Sprout’s appraisal was
entitled to greater weight. The BTA agreed with Sprout’s conclusion that the highest-and
best use of the property was as a fast-food restaurant, rather than as a more broadly
defined restaurant or as a property that could be put to use for another retail purpose.
The BTA found this difference to be “crucial” and concluded that Weis’s approach had
undervalued the property. Because Sprout had defined the highest-and-best use more
narrowly, the BTA, as the finder of fact, was permitted to reasonably conclude that his
comparables were more carefully tailored to this particular use.
{¶ 38} The BTA’s statement that Sprout’s selection of comparable properties “best
represented the market in which the subject property would operate” is reasonable if the
“market” is defined in this broader sense, rather than as limited to Montgomery County.
And we reject McDonald’s assertion that this statement by the BTA “makes no sense
whatsoever” and is “literally impossible.”7
7 We also reject McDonald’s assertions that the Sprout report “strangely chose” an


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Adjustments
{¶ 39} McDonald’s also asserts that Sprout’s analysis is inferior to Weis’s because
Sprout’s qualitative adjustments to the sales prices of his comparable properties were
less reliable than Weis’s qualitative and quantitative sales-price adjustments,8 and
because Sprout did not provide market support for his conclusions.
{¶ 40} The BTA has held that “qualitative, rather than quantitative adjustments, are
recognized standard appraisal practice.” Insite Wooster, LLC, v. Wayne Cty. Board of
Revision, BTA No. 2014-4149, 2015 WL 11005090, *4 (Sept. 11, 2015), citing Bd. of Edn.
of the Columbus City Schools v. Franklin Cty. Bd. of Revision, BTA No. 2014-2022, 2015
WL 1048721 (Feb. 27, 2015). Here, the BTA specifically referenced the Columbus City
Schools decision for this proposition and rejected McDonald’s criticism of the fact that
Sprout used qualitative adjustments as opposed to the quantitative adjustments Weis
applied in his report.
{¶ 41} McDonald’s does not explain exactly what it thinks is wrong with Sprout’s
qualitative adjustments, other than that they were subjective. We disagree that they were
subjective. Having reviewed the record in its entirety, we do not find Sprout’s adjustments
purely subjective. Both experts testified about their process of making adjustments and
they applied similar factors, like location, size, and so forth, to adjust the sales prices of
appraisal method, that the BTA's decision is “not merely unreasonable, but shocking,” that the Sprout testimony “laughably referr[ed]” to certain building features, that the BTA engaged in “[s]loppy reasoning,” that Sprout made “outlandish claims,” that the BTA’s reasoning was “lazy and factually inaccurate,” that the BTA failed “to employ common sense and good judgment in evaluating [Sprout’s] appraisal report,” or that Sprout “magically conclude[d]” a higher value than the BOR.

8 The BTA described Weis’s adjustments only as “quantitative.”


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the properties. We fail to see how Sprout’s adjustments were more unsubstantiated than
Weis’s.
Sprout’s sales-breakpoint analysis
{¶ 42} McDonald’s contends that the BTA ignored the problems that McDonald’s
raised concerning Sprout’s sales-breakpoint analysis. McDonald’s claims that Sprout’s
income-capitalization approach is “built around some conjectured ‘sales breakpoint
analysis,’ ” which McDonald’s calls “a flawed methodology unsupported by verifiable
market research or appraisal industry guidelines that he used to substantiate his income
capitalization approach.”
{¶ 43} A “sales breakpoint” typically refers to “[t]he amount of gross sales at which
percentage rent becomes payable.” Baldwin’s Ohio Practice Ohio Real Estate Law,
Percentage rent, Section 46:12 (December 2017 Update).9 One Ohio appellate court has
said this about a sales-breakpoint provision in a lease: “A percentage rent was an
additional amount payable by a retail tenant at the Centre when its annual sales exceeded
a level defined in its lease and referred to as a ‘breakpoint.’ The additional rent due was
computed as a percentage of the amount by which the tenant’s sales exceeded the
breakpoint.” Kenwood Plaza Ltd. Partnership v. State Teachers’ Retirement Sys. Bd., 1st
Dist. Hamilton No. C-000730, 2001 WL 1077939, *9 (Sept. 14, 2001). These explanations
9 “Percentage rent” has been explained this way: “Percentage rent is a reflection of the fact that the commercial location in question is so valuable a location that the traffic generated warrants a premium to be computed in accordance with the commercial revenues obtained from business at the site. Percentage rent also gives the landlord certain protections from the effects of inflation, while protecting the tenant from downturns in sales.” Baldwin’s Ohio Practice Ohio Real Estate Law, Percentage rent, Section 46:12 (December 2017 Update). “Percentage rent is frequently based on gross sales in excess of the amount of gross sales which would yield the base rent when multiplied by the applicable percentage.” Id.


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agree with the definition that Sprout gave at the BTA hearing that “[a] breakpoint is * * * a
percentage of sales.” (July 12, 2016, BTA No. 2015-2319, Tr. 31). Using Wendy’s
restaurants as an example, Sprout said that “[t]hose leases also a lot of times have a
percentage rent based on a breakpoint. So if they achieve a sale level that’s above that
breakpoint, then the lessee is paying percentage rents to the property owner * * *.” Id. at
17. A sales-breakpoint provision is put in a lease agreement, said Sprout, “because that
way if the tenant’s doing well with their sales, the landlord is benefitting as well.” Id. at 32.
How sales breakpoints are determined and the significance of their analysis is complex.
Indeed, after going through a lengthy explanation for the BTA hearing examiner, Sprout
admitted that “it took me a long time to figure that out myself.” Id. at 33.
{¶ 44} McDonald’s did not spend much time challenging Sprout’s sales-breakpoint
testimony. It asked him whether “a sales breakpoint rent clause [is] much more common
in tenant situations where it’s a mall or a strip center than a fast food restaurant.” (July
16, 2016, BTA No. 2015-2357, Tr. 24). Sprout disagreed and testified that in his
experience national fast-food companies use sales-breakpoint provisions in typical
restaurant leases, giving Wendy’s as an example.
{¶ 45} McDonald’s gives no reason why Sprout’s sales-breakpoint analysis is such
a problem. It may well be that a sales breakpoint increase in rent disadvantages a more
successful business because the net operating income is increased, and hence the
income-capitalization value of a specific property will be higher. But the BTA heard
Sprout’s testimony about his sales-breakpoint analysis and heard McDonald’s attempts
to undermine it. We leave it to the BTA’s discretion to accord the analysis the weight that
it deserves.


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Sprout’s inconsistent results
{¶ 46} McDonald’s claims that Sprout’s appraisal methodology produced
inconsistent results. It cites another case involving a McDonald’s valuation in which both
Weis and Sprout participated as appraisers, Bd. of Edn. of the Brookville Local Schools
v. Montgomery Cty. Bd. of Revision, BTA No. 2016-325, 2017 WL 3034549 (July 6, 2017).
In that case, the appraisers valued a McDonald’s that was “at the end of its economic life”
and was slated to be demolished and replaced, and the BTA noted that the restaurant’s
age “greatly impact[ed]” its value. The BTA relied on Weis’s selection of comparable
properties, rather than on Sprout’s, in determining the value of the property.
{¶ 47} McDonald’s says that the result in the Brookville case should lead us to
reject Sprout’s appraisal in this case. There are flaws in this reasoning, including that
each case is factually different, that we do not have the record and evidence from the
Brookville case, and that the BTA’s rejection of the valuation provided by an appraiser in
one case does not automatically impugn that appraiser’s qualifications or his opinion in
another case. Appraisers make judgments based on the facts of each case, and those
facts differ. Accordingly, we find no merit to McDonald’s claim that Sprout’s methodology
is inconsistent.
ii. The highest-and-best-use finding
{¶ 48} McDonald’s next major argument is that the BTA’s conclusion as to the
property’s highest-and-best use is too narrow. McDonald’s says that the BTA effectively
valued the property as “special purpose” property.
Special-purpose property?
{¶ 49} McDonald’s focuses much of its argument on the fact that the two


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appraisers expressed different opinions about whether the East Dixie Drive McDonald’s
restaurant was a special-purpose property. But even though Sprout believed that it could
have been treated as such, he did not value the property as special-purpose property. So
Sprout’s observation that the property could have been classified as a special-purpose
property was inconsequential to the BTA’s decision. Indeed, the BTA noted in its decision
that “although the property owner faults Sprout’s conclusion that the subject property fit
the definition of ‘special-purpose property,’ we find no error there given that he testified
that he did not appraise the property as if it were a ‘special-purpose property.’ ”
Rite Aid
{¶ 50} McDonald’s contends that the BTA ignored Rite Aid of Ohio, Inc., v.
Washington Cty. Bd. of Revision, 146 Ohio St.3d 173, 2016-Ohio-371, 54 N.E.3d 1177.
In Rite Aid, the BTA adopted the property owner’s lower valuation, finding that the
county’s comparables, “while potentially appropriate,” were drawn from an unnecessarily
narrow pool of properties. The Ohio Supreme Court agreed. The Court concluded that
the county’s appraiser had essentially and unjustifiably treated the subject property as a
special-use property and that therefore the BTA “was justified in rejecting” the county’s
appraisal and adopting the property owner’s. The Court also criticized the county’s
argument that properties encumbered by a lease at the time of sale could be compared
with unencumbered properties, without adjustment for this difference, “[p]recisely
because the lease affects the sale price and value.” Id. at ¶ 20.
{¶ 51} But Sprout’s appraisal does not treat the subject property here as special
purpose property, and the appraisal incorporates very specific information about existing
leases on comparable properties in determining whether adjustments in value are


-23
appropriate. So we see no conflict between Rite Aid and the BTA’s decision here.
The BTA’s precedent
{¶ 52} McDonald’s also claims that the BTA ignored its own precedent. In NWD
300 Spring, L.L.C v. Franklin Cty. Bd. of Revision, 151 Ohio St.3d 193, 2017-Ohio-7579,
87 N.E.3d 199, the Ohio Supreme Court affirmed the BTA’s valuation of a luxury, high
rise residential condominium building. Sprout and another appraiser had provided
competing appraisals giving different values. In Sprout’s analysis, he selected as
comparable properties a variety of vacant land parcels designated for mixed-use in the
nearby market rather than vacant land parcels designated for residential use (which is
what the other appraiser did). The BTA found that Sprout’s comparables were more
appropriate and reflective of the subject property’s market. The BTA commended Sprout
for “ ‘consider[ing] a wider variety of commercial development’ ” and faulted the other
appraiser for “ ‘utiliz[ing] only sales of properties ultimately developed into apartments.’ ”
NWD 300 Spring at ¶ 9, quoting BTA Nos. 2015-106 et al., 2015 WL 11018757, *4 (Dec.
23, 2015). McDonald’s says that the BTA’s decision in the present case directly
contradicts its decision in NWD 300 Spring.
{¶ 53} As we have already pointed out, every valuation case is factually different.
We do not have the record and evidence from the NWD 300 Spring case. The BTA’s
acceptance of an analysis provided by an appraiser in one case does not mean that the
BTA must accept the same analysis in another case. The facts on which an appraiser
makes judgments differ in every case. Therefore we find no merit in McDonald’s claim
that the BTA ignored its own precedent.
iii. Consideration of present use


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{¶ 54} McDonald’s next major argument is that the BTA erred by applying the
holding in Johnston Coca-Cola Bottling, 149 Ohio St.3d 155, 2017-Ohio-870, 73 N.E.3d
503. McDonald’s says that that case involved the valuation of an enormous bottling plant,
which is unlike the subject property here.
{¶ 55} In Johnston, the Ohio Supreme Court reaffirmed that the “present use”
method of evaluation cannot be the basis of valuing real property for tax purposes,
because it “ ‘excludes, among other factors, location and speculative value which
comprise market value * * *.’ ” Id. at ¶ 13, quoting State ex rel. Park Inv. Co. v. Bd. of Tax
Appeals, 32 Ohio St.2d 28, 33, 289 N.E.2d 579 (1972); Rite Aid at ¶ 27. Which is not to
say that present use must be ignored. Rather, as the Court stressed in Johnston,
“[a]lthough present use generally cannot be the only measure of value, in a proper case
it may be considered in determining true value for tax purposes.” Johnston at ¶ 14. The
key point is that the present-use value may not be considered “to the exclusion of other
factors relevant to exchange value.” Id. at ¶ 15. The Johnston court found that the BTA
referred to the property’s present use as a bottling company but that “it did so in the
context of deciding which comparables identified by the appraisers were ‘more analogous’
under the sales-comparison approach.” Id. at ¶ 16. This consideration of present use was
not improper.
{¶ 56} Here, the BTA observed that Sprout did not value the subject property
based solely on its present use as a McDonald’s restaurant: “[W]e find that Sprout
properly considered the subject property’s current use as a McDonald’s restaurant and
developed the sales comparison and income approaches to value to determine the
subject property’s exchange value.” Johnston supports this finding, said the BTA. On this


-25
record we cannot disagree.
iv. The capitalization rate
{¶ 57} McDonald’s argues that the BTA should have chosen Weis’s capitalization
rate of 8.25% over Sprout’s 7.0% rate.
{¶ 58} The BTA faulted Weis’s capitalization rate because he derived it from
properties that were unlike the subject property:
* * * Weis’s capitalization rate raises concerns given that it was derived from
properties that were dissimilar from the subject properly, i.e., general retail,
instead of restaurant or fast-food restaurant properties. As such, we cannot
confirm that his capitalization rate appropriately captures the market in
which the subject property would operate. However, Sprout’s capitalization
rate was based upon fast-food restaurants and, therefore, reflective of the
subject property’s most likely use.
{¶ 59} Both appraisers consulted local and national capitalization rates to derive
their respective rates. Sprout looked at seven fast-food restaurants in Ohio, three of which
were in the Dayton area. The capitalization rates of these properties ranged from 5.45%
to 6.77%. Sprout also consulted the PwC Real Estate Survey, “a national publication
indicating typical capitalization rates within the net lease market traded in the U.S.,” which
he included with his report. (Sprout Appraisal Report, p. 45). This survey shows a range
of 6.0% and 8.5%. Finally, Sprout conducted a band-of-investment analysis, which
showed a range of 6.77% to 7.27%. As for Weis, he looked at 32 properties across Ohio,
only ten of which were restaurants and of those ten only nine were fast-food. And like
Sprout, Weis consulted a source for national capitalization rates. This source used


-26
various techniques to determine the capitalization rate in the retail, restaurants (all types),
and restaurants (fast food) sectors.
{¶ 60} Which capitalization rate is more accurate? Who knows. But the evidence
supporting Sprout’s rate of 7.0% is reliable and probative. And the BTA’s decision to adopt
this rate as the appropriate capitalization rate for the subject property was reasonable.
See Dublin City Schools Bd. of Edn., 139 Ohio St.3d 193, 2013-Ohio-4543, 11 N.E.3d
206, at ¶ 13; Terraza 8, 150 Ohio St.3d 527, 2017-Ohio-4415, 83 N.E.3d 916, at ¶ 7.
v. Sprout’s qualifications as an expert
{¶ 61} Finally, McDonald’s argues that the BTA should not have “continu[ed] to
recognize” Sprout as an expert. McDonald’s suggests that it discredited or impeached
Sprout such that the BTA should have doubted whether Sprout “ha[d] experience in
appraising fast-food restaurants” or was “familiar with the neighborhood in which the
Subject Property is located.”
{¶ 62} In its decision, the BTA rejected McDonald’s argument that Sprout was not
an expert:
We note that, at this board’s hearing, the property owner stipulated to
Sprout’s qualifications as set forth in his appraisal report; however, in its
post-hearing briefs, the property owner attempts to impugn
Sprout’s qualifications and claims that he misled this board about his
qualifications. We find no merit to this argument and recognize Sprout (and
Weis) as an expert qualified to render an opinion on the subject property’s
value.
The BTA provided a detailed discussion of how it weighed the experts’ opinions and


-27
methodology, including specific criticisms of Weis’s analysis. McDonald’s obviously
disagrees with Sprout’s conclusions, but nothing in the record suggests that Sprout was
unqualified, that his choice of comparable properties or his calculations were
unreasonable, or that his valuation should have been disregarded because he lacked
appropriate qualifications.

Outcome: The BTA said in its decision that “inherent in the appraisal process is the
fact that an appraiser must make a wide variety of subjective judgments” in selecting data on which to rely, making adjustments to the data to make it “usable,” and interpreting and evaluating all the information to form an opinion. Similarly, the BTA must use its judgment in determining which evidence presents the most credible valuation. Here, the BTA relied
on credible evidence from an appraiser who presented support for his positions. Based on the record before us, we conclude that the BTA’s determination was reasonable and lawful.

All of the assignments of error are overruled. The BTA’s decision is affirmed.

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