Although the county auditor originally determined that the fair market value of an apartment complex in the New Albany area of the Columbus city school district was $16 million for tax year 2015, the Ohio Board of Tax Appeals (BTA) properly increased the valuation to $34.5 million based on a sale of the property in 2015, the Ohio Supreme Court ruled today.

The Supreme Court affirmed the BTA’s decision to raise the value of the 264-unit Palmer House apartments, which the BTA issued after the Columbus City Schools Board of Education challenged the lower valuation. The district introduced evidence indicating that the property had sold for an amount far more than the auditor’s original valuation, and the seller and the buyer had structured the transfer not as a conveyance of the real estate for a price, but as the sale of the limited liability company that owned the real estate.

Writing for the Court majority, Justice Michael P. Donnelly stated that the evidence supported the BTA’s finding that the transaction was, in substance, a sale of real estate, and that the transfer of corporate ownership “constituted a contrivance for the sale of commercial real estate.” Accordingly, the BTA could rely on the sale price as the best evidence of the property’s value.

Chief Justice Maureen O’Connor and Justices Sharon L. Kennedy, Judith L. French, R. Patrick DeWine, and Melody J. Stewart joined Justice Donnelly’s opinion. Justice Patrick F. Fischer concurred in judgment only.

Recorded Documents Lead to Apartment Value Dispute
The apartment complex was constructed in 2013 and valued by Franklin County at $16 million. The district challenged the valuation at the Franklin County Board of Revision, noting a recorded mortgage that secured a $25 million loan. The district inferred from the loan that the complex was worth $34 million. The board of revision rejected the arguments, and the district appealed to the BTA.

At the BTA, the district presented a conveyance of the real estate by deed from Palmer Square LLC to Palmer House Borrower LLC, which is the current owner of the real estate. The district also introduced documentation showing that Palmer House Borrower assumed the $25 million mortgage obligation on the same day the real estate transferred. In addition, the school produced a “purchase and sale agreement,” which indicated Palmer Square was selling to PPG Manhattan Real Estate Partners LLC all its real estate, personal property — including the clubhouse furnishings and recreational amenities at the complex — and intangibles, such as the name “Palmer House.” The final price was listed at $35.25 million. A settlement statement confirmed that Palmer House Borrower, the entity that now owned the apartment complex, was transferred for the stated sale price.

The district presented a financing appraisal valuing the property at $36.6 million, while an appraiser hired by Palmer House valued the real estate at $25 million. Palmer House disputed all the evidence introduced by the district.

The BTA considered the $35.25 million sale price to be the presumed value of the real estate, and then deducted the value of the personal property based on a computation performed by Palmer House’s appraiser. The BTA arrived at a $34.5 million valuation.

Palmer House appealed the BTA decision and requested that the Ohio Supreme Court consider the case.

Court Considers Sale Price
Justice Donnelly explained that under Ohio law, when a property is the subject of a recent arm’s length sale between a willing seller and buyer, the sale price can be considered the true value of the property for tax purposes. The opinion explains the price is the best evidence of the value, but parties can rebut the sale price by introducing other evidence that demonstrates a different value.

Palmer House mainly argued that the BTA incorrectly considered the transactions among the LLCs as a real estate purchase rather than a transfer of the “going concern” value of the LLC. Because the transfer involved more than just the real estate, the BTA should adopt the complex’s appraiser’s value of $25 million, the company argued.

The opinion explained that unlike past cases where LLC transfer prices were not used to set property values, this case included a purchase agreement that identified the real estate as the primary subject of the sale, while also specifically describing the option for consummating the sale through the transfer of an LLC.

Based on the documents, the Court ruled the BTA acted reasonably and lawfully by valuing the property at $34.5 million for tax purposes.

2018-1299. Columbus City Schools Bd. of Edn. v. Franklin County Bd. of Revision, Slip Opinion No. 2020-Ohio-353.

View oral argument video of this case.

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