Milwaukee Block 10 Properties, LLC v. City of Milwaukee

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
June 16, 2020
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10 and
RULE 809.62.

Appeal No. 2019AP1424 Cir. Ct. No. 2016CV5469

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT I

MILWAUKEE BLOCK 10 PROPERTIES, LLC AND MILWAUKEE RIVER HOTEL,
LLC,

PLAINTIFFS-RESPONDENTS,

V.

CITY OF MILWAUKEE,

DEFENDANT-APPELLANT.

APPEAL from an order of the circuit court for Milwaukee County:
WILLIAM S. POCAN, Judge. Reversed and cause remanded with directions.

Before Brash, P.J., Blanchard and White, JJ.

Per curiam opinions may not be cited in any court of this state as precedent

or authority, except for the limited purposes specified in WIS. STAT. RULE 809.23(3).
No. 2019AP1424

¶1 PER CURIAM. The City of Milwaukee appeals an order of the trial
court regarding the claims of excessive property tax assessments brought by
Milwaukee Block 10 Properties, LLC and Milwaukee River Hotel, LLC
(collectively “Block 10”) for its property, the Aloft Hotel. Block 10 argues that the
2016 tax assessments for the Aloft was excessive because it improperly included
parking income generated from parking guests’ vehicles in a parking ramp that is
off-site and owned by a third party.

¶2 The trial court found that the 2016 assessment should not have
included the parking income because that business value would not be transferred
upon a sale of the Aloft because the hotel does not own the ramp. The court
therefore ordered reassessment for 2016, which resulted in reimbursement to Block
10 of more than $20,000.

¶3 We disagree. The relevant issue for consideration is whether the
parking income would continue upon a theoretical sale of the Aloft, and the
ownership of the parking ramp is not a pertinent factor in this analysis. We therefore
reverse and remand this matter for the entry of a judgment in favor of the City, and
the dismissal of Block 10’s complaint.

BACKGROUND

¶4 The Aloft is located on Old World Third Street in the City of
Milwaukee. For 2015, the City assessed the Aloft at a value of $18,543,000.00;
Block 10 appealed. Upon review by the City, the assessment was slightly reduced
to $18,491,300.00. The resulting property tax was $542,849.10, which was timely
paid by Block 10. However, Block 10 filed a Claim of Excessive Assessment with
the City, asserting that the assessment for the Aloft should be no higher than

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$10,452,856.00. It therefore sought a refund for the alleged excessive tax of almost
$236,000.00, plus interest. The City disallowed the claim on April 19, 2016.

¶5 The 2016 assessment for the Aloft was set at $18,491,300.00.
Block 10 again appealed. This time, after review by the City, the assessment was
increased to $20,305,000.00. The change in assessment was attributed to parking
income generated through a contract that the Aloft has with a parking ramp owned
by a third party, which provides valet parking for Aloft guests. This parking income
to the Aloft was not included in the 2015 assessment. According to the Property
Assessment Report for the Aloft prepared by the Assessor’s Office, the failure to
include the parking income was an oversight that was corrected in 2016.

¶6 The 2016 assessment resulted in a tax of $582,836.74 on the property,
which was timely paid by Block 10. Block 10 again filed a Claim of Excessive
Assessment, seeking a refund of almost $238,000.00, plus interest. The claim was
again disallowed by the City on March 1, 2017.

¶7 Block 10 subsequently filed the underlying action, challenging both
assessments pursuant to WIS. STAT. § 74.37(3)(d) (2017-18).1 A court trial was
conducted in August 2018, where evidence was presented regarding the fair market
value of the Aloft. This included testimony from experts for both parties: the City’s
assessor, Timothy Krystowiak; and Block 10’s appraiser, John VanSanten.

¶8 In a written decision filed in December 2018, the trial court upheld
the 2015 assessment but ordered the City to reassess the Aloft for 2016. The court

1
The complaint regarding the 2015 assessment was filed on July 19, 2016. It was
subsequently amended on June 19, 2017, to include the 2016 assessment.

All references to the Wisconsin Statutes are to the 2017-18 version unless otherwise noted.

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noted that the two experts both used the income approach to determine the value of
the Aloft, although their methods differed. This led to disagreements on several
calculations, including “how to treat parking income derived from a separate tax
parcel.”

¶9 The trial court found that Block 10 had demonstrated that the parking
income should not be included in the real estate valuation. The court observed that
such a business value should be included in a valuation only when it is “inextricably
intertwined” with a business. It found that was not the case here, since this business
value—the parking income—would not be transferred with the Aloft if it was sold,
because a buyer of the Aloft would not be purchasing the parking ramp.

¶10 At trial, the City had provided a calculation of the assessment for the
Aloft less the net parking income, which the trial court found to be credible. This
calculation resulted in no reduction for the 2015 assessment, because that
assessment had not included parking income. However, because the court was not
able “to determine the amount of unlawful taxes with reasonable certainty” for 2016,
the court ordered that the Aloft be reassessed for 2016.

¶11 After reassessing the Aloft for 2016, the City Assessor’s Office set its
assessment at $19,586,700. This assessment, which was adopted by the trial court,
resulted in a refund to Block 10 of $20,618.15, plus statutory interest, for the
excessive taxes paid. This appeal follows.

DISCUSSION

¶12 Claims for excessive tax assessments are brought under WIS. STAT.
§ 74.37(3)(d). In such cases, we review the record from the trial court, not the record
from the City’s review of the claim. See Walgreen Co. v. City of Madison, 2008

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WI 80, ¶16, 311 Wis. 2d 158, 752 N.W.2d 687. We defer to the trial court’s findings
of facts, but the application of the law to those facts is a question of law that we
review de novo. Id., ¶17.

¶13 Property assessments prepared by the City are presumed to be correct.
See WIS. STAT. § 70.49(2). This presumption is overcome if the party challenging
the assessment either (1) presents significant contrary evidence; or (2) demonstrates
that the City did not apply the principles of the Property Assessment Case Manual.
Allright Props., Inc. v. City of Milwaukee, 2009 WI App 46, ¶12, 317 Wis. 2d 228,
767 N.W.2d 567.

¶14 The issue of whether the Aloft’s parking income should be included
in its assessment arose due to the use of the income approach for the valuation.
According to the Manual, the income approach may be used in the valuation of a
property when there are no comparable sales available. Id., ¶30. Furthermore, the
Manual states that the income approach “may be the most reliable method in
estimating the value of commercial property because it represents the way investors
think when they buy and sell income property in the market.” Id. (citing 1 Property
Assessment Manual at 9-11 (emphasis in Allright Properties omitted). For this
reason, it is an appropriate method of establishing value for “a number of different
properties, including … hotels[.]” Waste Mgmt. of Wis., Inc. v. Kenosha Cty. Bd.
of Review, 184 Wis. 2d 541, 561, 516 N.W.2d 695 (1994).

¶15 The City argues that the Aloft’s parking income should be included in
the assessment because it is “inextricably intertwined” with the Aloft’s business
value. “The concept of inextricable intertwinement allows business value to be
included within the assessment of real property where the income-generating
capability can be transferred with the real estate.” Adams Outdoor Advert., Ltd. v.

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City of Madison, 2006 WI 104, ¶79, 294 Wis. 2d 441, 717 N.W.2d 803. Whether
certain income may be included in the property assessment of a business “hinges on
whether the value appertains to the property.” ABKA Ltd. P’ship v. Board of
Review of Fontana-On-Geneva Lake, 231 Wis. 2d 328, 336, 603 N.W.2d 217
(1999). A “value that appertains to property is one that is transferable with the
property,” as opposed to value that “‘is, in effect, independent of the property so
that the value either stays with the seller or dissipates upon sale.’” Id. at 336-37
(citation omitted).

¶16 The trial court, while finding that the City had complied with the
Manual, held that Block 10 had presented significant contrary evidence, namely,
significant evidence that the parking income should not be included in the Aloft’s
assessment. The court’s decision was based on the fact that the Aloft does not own
the parking ramp it utilizes to generate this income. Indeed, in many of the cases
addressing this issue, the property owners were challenging assessments that
included income generated based solely on use of the taxed property at issue. See,
e.g., Allright Props., Inc., 317 Wis. 2d 228, ¶16; Waste Mgmt. of Wis., 184 Wis.
2d at 545.

¶17 However, property ownership is not the driving factor of the analysis
for including business income in an assessment. For example, in ABKA, the
property owners of the Abbey on Geneva Lake Resort asserted that the assessment
by the Village of Fontana-on-Geneva Lake improperly included income from its
management of separately owned off-site condominiums. ABKA Ltd. P’ship, 231
Wis. 2d at 331. Our supreme court disagreed, however, finding that the
management income was inextricably intertwined with the Abbey. Id. Although
the Abbey did not own the condominiums, they had been developed by the Abbey’s
owners “with the intention of providing a steady and available source of customers

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for the Abbey.” Id. at 338. Therefore, the ABKA court found that “the listing of
the management income was relevant because it indicated that the value of the
Abbey included the management income and suggested that potential purchasers
would be purchasing the ability to earn the income as well.” Id. at 340. As a result,
a new owner with “[a] competent level of management” could be “expected to
reproduce the predicted income stream from the condominiums.” Id. at 342. In
other words, ownership of the condominiums was not essential for the income to
properly be included in the assessment of the Abbey; rather, the likelihood that the
income from “competent” management of the condominiums would continue upon
the sale of the Abbey was the salient point.

¶18 Block 10 relies on the fact that a transfer in ownership of the Aloft
would not include contractual rights with the owner of the parking ramp currently
used by the Aloft. However, under the reasoning of the ABKA court, the issue here
is not whether Block 10 owns the parking ramp used by guests of the Aloft, but
instead whether the income derived from guests of the Aloft who require parking
services would continue under “competent” management of the hotel property upon
its transfer.

¶19 Under this analysis, it is not relevant that contract rights with the
parking ramp’s owner would not be included in a sale to a new owner of the Aloft
property. What is relevant is whether a new owner of the hotel property would have
the “ability to exploit the income-producing capacity that inherently exists” at a
hotel that attracts guests who require parking services. See id. at 341-42. Put
another way, the opportunity for the hotel property, once sold, to generate parking
income is not derived from the particular parking ramp that has the current contract
with the Aloft.

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¶20 In our review of the record, Block 10 did not present significant
contrary evidence that parking income would not continue if the Aloft was sold.
This would require showing that the parking income would “dissipate[] upon
sale”—essentially, demonstrating that guests requiring parking services would
cease to stay at the Aloft upon a transfer of ownership, which Block 10 failed to do.
See id. at 337. Therefore, the Aloft’s parking income is inextricably intertwined
with its business value. See Adams Outdoor Advert., Ltd., 294 Wis. 2d 441, ¶79.

¶21 In basing its decision primarily on the ownership of the parking ramp,
the trial court did not apply the proper legal standard to the facts of this case.
Furthermore, when the proper legal standard is applied, as explained above,
Block 10 did not overcome the presumption that the City’s assessment of the Aloft
was correct. See Allright Props., Inc., 317 Wis. 2d 228, ¶12. Accordingly, we
reverse and remand this matter for entry of a judgment in favor of the City and
dismissal of Block 10’s claims.

By the Court.—Order reversed and cause remanded with directions.

This opinion will not be published. See WIS. STAT.
RULE 809.23(1)(b)5.

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