Mayfair Mall LLC v. City of Wauwatosa

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.
May 18, 2021
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. 2019AP1232 Cir. Ct. No. 2014CV3776

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT I

MAYFAIR MALL LLC,

PLAINTIFF-APPELLANT,

V.

CITY OF WAUWATOSA,

DEFENDANT-RESPONDENT.

APPEAL from a judgment of the circuit court for Milwaukee County:
MARSHALL B. MURRAY, Judge. Reversed and cause remanded with directions.

Before Brash, P.J., Dugan and Donald, JJ.

¶1 BRASH, P.J. Mayfair Mall, LLC, by its member General Growth
Properties, Inc. (collectively “GGP”), appeals from a judgment of the trial court in
which it concluded that the property assessments of Mayfair Mall (the “Mall”), as
determined by the City of Wauwatosa for 2013, 2014, and 2015, were not excessive.
No. 2019AP1232

GGP argues that the trial court did not employ the proper standards of valuation in
making its determination, and seeks a reversal of the judgment and remand to the
trial court for a determination based on the proper standards.

¶2 Upon review of the extensive record in this matter, we conclude that
the findings of the trial court are insufficient to allow this court to determine whether
the assessments were excessive because the trial court failed to provide and explain
its bases for those findings. We therefore reverse and remand this matter for further
fact finding that includes the relevant information and reasoning upon which the
court relied in making its findings of fact and conclusions of law.

BACKGROUND

¶3 GGP purchased the Mall in 1998. For purposes of assessment, during
the timeframe relevant to this appeal, the Mall property included the mall itself; an
adjacent restaurant and retailer; a separate parking structure; two separate office
buildings; an office building attached to the mall building; and a vacant parcel.

¶4 The assessments of the Mall challenged by GGP were:

2013 $400,000,000

2014 $400,000,000

2015 $421,008,500

In contrast, for 2011 and 2012, the assessment of the Mall was $286,378,100.

¶5 GGP timely filed claims for excessive assessment with the City for
each of the years challenged, but the claims were denied. GGP then filed the action
underlying this appeal.

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¶6 A court trial was held over approximately six non-consecutive weeks,
beginning in May 2017 and concluding in June 2018. Testimony was heard from
the assessor for the City, Steve Miner, who set the assessments for the Mall in 2011,
2012, and 2013, as well as from Shannon Krause, who became the City’s assessor
after Miner left that position for a position with the City of Milwaukee. Krause set
the assessments for the Mall in 2014 and 2015. Both assessors explained the
methodologies they used in setting the challenged assessments and the information
upon which the values were based.1

¶7 Additionally, the City retained Mark Kenney, an experienced
appraiser, as a consultant regarding the valuation of the Mall. Kenney had
previously appraised two department stores at the Mall—Boston Store and
Macy’s—and was able to provide “significant information” regarding the Mall
property. Kenney also prepared independent appraisals for the Mall for 2013, 2014,
and 2015, and testified at the trial as well.

¶8 Also testifying on behalf of the City as experts were William Miller
and Thomas Hamilton, who reviewed the studies and appraisals of the Mall prepared
by GGP’s experts. Those experts for GGP included Paul Bakken, who prepared
appraisals for the Mall; Peter Korpacz, who performed value studies using income
analysis and sales comparisons; James Harkin, who prepared a replacement cost
study; and Richard Marchitelli, who performed appraisal analyses.

¶9 The trial court found the appraisals and conclusions presented by the
City’s assessors and experts to be “more credible, reliable, and persuasive” than
those proffered by GGP’s experts. In fact, the trial court concluded that GGP’s

1
Further details regarding the assessment methodologies utilized and the information
considered by the assessors will be provided throughout this opinion as needed.

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experts had “merely provide[d] flawed alternative methodologies” in their valuation
of the Mall.

¶10 Furthermore, noting the “presumption of correctness” of the City’s
assessments that must be overcome to successfully challenge an assessment, the trial
court found that GGP’s experts did not establish that the Mall was “incorrectly or
excessively assessed by the City.” The court further found that GGP had failed to
establish that the assessors for the City had violated Wisconsin law, or had failed to
follow the guidelines of the Wisconsin Property Assessment Manual (WPAM) in
setting the assessments.

¶11 As a result, the trial court concluded that GGP had failed to rebut the
presumption of correctness afforded the City. Accordingly, the court held that the
City’s assessments of the Mall for 2013, 2014 and 2015 were not excessive. This
appeal follows.

DISCUSSION

¶12 GGP brought this action pursuant to WIS. STAT. § 74.37(3)(d) (2019-
20),2 which permits the filing of an action with the trial court for a claim of excessive
assessment that has been denied by the taxation district. See id. Since this is a new
action when filed with the trial court as opposed to a certiorari review, our review
is of the trial court’s decision, not that of the assessor or the Board of Review for
the taxation district. See Metropolitan Assocs. v. City of Milwaukee, 2018 WI 4,
¶23, 379 Wis. 2d 141, 905 N.W.2d 784.

2
All references to the Wisconsin Statutes are to the 2019-20 version unless otherwise
noted.

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No. 2019AP1232

¶13 WISCONSIN STAT. § 70.32 directs how property is to be assessed, in
accordance with the WPAM. See id. In our review of a challenged assessment, we
“interpret and apply” § 70.32 to ensure that the assessment followed those statutory
directives. Regency W. Apartments LLC v. City of Racine, 2016 WI 99, ¶22, 372
Wis. 2d 282, 888 N.W.2d 611. Additionally, we apply the provisions of WIS. STAT.
§ 70.49(2), which provide a “presumption of correctness” that “attache[s]” to the
City’s assessments. See Regency W., 372 Wis. 2d 282, ¶22. These are questions of
law that we review independently, while benefitting from the trial court’s analysis.
See id.

¶14 However, we defer to the trial court’s findings of fact, and will not
overturn them unless they are clearly erroneous. See Metropolitan Assocs., 379
Wis. 2d 141, ¶25. A finding of fact is clearly erroneous “if it is against the great
weight and clear preponderance of the evidence.” Id., ¶62. Furthermore, it is
“within the province of the factfinder to determine the weight and credibility of
expert witnesses’ opinions.” Id., ¶25.

¶15 With regard to the application of WIS. STAT. § 70.32, our supreme
court has interpreted that statute as establishing a “hierarchical valuation
methodology” for appraising properties. Metropolitan Assocs., 379 Wis. 2d 141,
¶31. The “best” information for determining a property’s fair market value is an
“arm’s-length” sale of that property. Id., ¶32. This is referred to as a “Tier 1”
analysis. Id. If there is no recent sale of the property being assessed, a “Tier 2”
analysis may be conducted using sale information for properties that are comparable
to the subject property. Id., ¶33.

¶16 If neither Tier 1 nor Tier 2 information is available, the assessor may
conduct a “Tier 3” analysis. Id., ¶34. For that analysis, “an assessor may consider

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all the factors collectively which have a bearing on value of the property in order to
determine its fair market value.” Id. (citations and internal quotation marks
omitted). Such factors include “cost, depreciation, replacement value, income,
industrial conditions, location and occupancy, sales of like property, book value,
amount of insurance carried, value asserted in a prospectus and appraisals produced
by the owner.” Id. (citation omitted).

¶17 A Tier 3 analysis is further divided into two approaches for
determining value: the income approach, which “seeks to capture the amount of
income the property will generate over its useful life”; and the cost approach, which
“seeks to measure the cost to replace the property[.]” Id. The income approach
generally requires that the assessor determine the net operating income (NOI) for a
property for that assessment year. See id. The experts in this case explained that
the assessor then applies the capitalization rate to the NOI to calculate the assessed
value. To determine the appropriate capitalization rate, the experts agreed that the
PWC Real Estate Investor Survey—a widely respected and cited reference in that
industry—is generally utilized in making that calculation. The experts further
explained that the class of the mall, which is based on its retail sales and its earnings
for shareholders, is also taken into consideration for this calculation.

¶18 In setting the 2013 assessment for the Mall, Miner conducted analyses
using all three tiers. Although there had been no sale of the Mall since GGP
purchased it in 1998, an appraisal of the Mall had previously been done by Cushman
and Wakefield (“CW appraisal”) when GGP had filed for bankruptcy. The CW
appraisal was done to provide a post-bankruptcy valuation of all of the assets of
GGP—including the Mall—for purposes of reporting the same to the Securities and

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Exchange Commission as well as the public;3 it was not just a general assessment
of the Mall property. Nevertheless, that valuation in the CW appraisal was used by
Miner to calculate the Mall’s value under a Tier 1 analysis; he also utilized the sale
information for comparable properties listed in the CW appraisal for conducting his
Tier 2 analysis.

¶19 Ultimately, however, Miner determined that the Tier 3 income
approach would “produce the most reliable results[.]” Miner believed that the
“actual income and expenses” for the Mall would be the “best information” upon
which to base the value. Although Miner had “limited information” when he
initially set that assessment value because he had not received operating statements
or other relevant documentation from GGP, Miner was able to garner some of this
information from the CW appraisal, which contained lease information, including
rent, for every lease at the Mall.

¶20 Of course, the amount of rent collected by GGP at the Mall directly
affects its income, as do any expense adjustments related to those rents. The income
from the Mall, in turn, affects the capitalization rate that is used to calculate its value.

¶21 Ultimately, the trial court noted that Miner’s “final value” for the Mall
based on the income approach was “based on the actual income and expenses
provided” when the excessive assessment claim was reviewed by the City.
However, the court did not make specific findings regarding the basis for the rents
that were considered, other than noting Miner and Kenney’s reliance on the CW
appraisal, which GGP argues was erroneous in its method for valuing the leases.

3
GGP is a publicly traded real estate investment trust that owns many malls nationwide,
and must make quarterly and annual filings with the Securities and Exchange Commission.

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¶22 Additionally, the City concedes that the trial court did not address
whether the rent imputed to GGP’s NOI for the AMC Theatre in the CW appraisal
was accurate. The lease for the theatre is for the land only; AMC owns the building.
However, the CW appraisal assumes the theatre’s lease with GGP includes both the
land and building.

¶23 Although the trial court clearly found the City’s experts to be more
credible than GGP’s experts, it did not explain why they were more credible. In
other words, the court’s credibility determinations are unsupported. Therefore,
without more specific findings as to the bases for the rent valuation, we are unable
to determine whether the court’s factual findings relating to the leases and rents are
“against the great weight and clear preponderance of the evidence.” See id., ¶62.

¶24 We find a similar problem with the trial court’s factual findings
relating to the deduction of capital expenditures. In particular, GGP spent
approximately $70 million on improvements and renovations to the Mall property
in the fall of 2014 in preparation for a Nordstrom department store. Krause—who,
like Miner, used the Tier 3 income approach in setting the 2014 and 2015
assessments for the Mall—increased the Mall’s assessment for 2015 due to those
improvements.4

¶25 However, the experts in this case had differing opinions on how these
capital expenditures should affect the assessment of the Mall. For example, Krause
did not deduct the cost of the improvements for the Nordstrom expansion,
concluding that it was “both an improvement and an enhancement with an expected

4
We note that the improvements to the Mall property did not include the building in which
the Nordstrom department store is located; Nordstrom owns the land and building where its store
is located, and is assessed separately from the Mall.

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return.” In contrast, Bakken—one of GGP’s experts—made deductions in his
appraisal for the Nordstrom expansion improvements for all three years being
challenged.

¶26 Bakken’s appraisal was reviewed by Hamilton, one of the City’s
experts. Hamilton opined that the deduction of the Nordstrom expansion costs
“does not recognize any potential change in revenue,” and that these deductions
were “improper.” Similarly, Miller, another expert for the City, declared that it is
“not appropriate” to deduct such costs without “considering benefits” of those
improvements—that is, the expected return on investment for the improvements.
Yet, Kenney’s independent appraisal of the Mall, prepared for the City, deducted
capital expenses.

¶27 Thus, the opinions of the City experts do not appear to be in sync on
the issue of the deduction of capital expenses, and it is not clear from the trial court’s
findings how it reconciled the opinions of the City’s experts. For example, there is
no indication of whether the “benefits” of the expansion costs were included in
Krause’s assessment for 2015.

¶28 Additionally, Miller stated that it was improper for Bakken and
Marchitelli to deduct the Nordstrom expansion costs as capital expenses in their
appraisals for 2013 and 2014 because “no binding agreement had been entered
between GGP and Nordstrom.” This seems to indicate that a deduction may have
been appropriate for 2015; however, the trial court does not specifically address this
in its findings.

¶29 In short, it is unclear from the trial court’s findings how it determined
that the capital expenditures by GGP for the Nordstrom expansion improvements
should have been considered; that is, whether they were improperly deducted only

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in 2013 and 2014, because no binding agreement between GGP and Nordstrom was
yet in existence, or whether they should have been deducted at all. Moreover, it is
unclear whether there were other capital expenses at issue here besides the
Nordstrom expansion costs.

¶30 The presumption of correctness of an assessed value is overcome if
the party challenging the assessment presents “significant contrary evidence” that
the assessment was incorrect. Adams Outdoor Advert., Ltd. v. City of Madison,
2006 WI 104, ¶25, 294 Wis. 2d 441, 717 N.W.2d 803. In this case, there was
extensive factual information introduced during the trial, which was noted by the
trial court, in addition to its making a number of references to the lack of information
provided by GGP. However, the written decision of the trial court jumps from the
facts that it notes in its decision to its findings, without explaining how and why it
came to make those findings of fact—such as why the City’s experts were more
credible—leaving us with numerous questions regarding the bases for those
findings. Because the court did not provide this reasoning in its decision, we are
unable to determine whether the evidence presented by GGP was sufficient to
overcome the presumption of correctness for the City’s assessments of the Mall.
Therefore, we reverse and remand this matter for further fact finding that includes
the bases and reasoning upon which the trial court’s findings of fact and conclusions
of law are based, consistent with this opinion.

By the Court.—Judgment reversed and caused remanded with
directions.

Not recommended for publication in the official reports.

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