            IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Downingtown Area School                   :
District,                                 : No. 2182 C.D. 2014
                                          : Argued: October 5, 2015
                            Appellant     :
                                          :
                     v.                   :
                                          :
Chester County Board of                   :
Assessment Appeals and                    :
SPC 2001A-CSF-67 LLC                      :


BEFORE:       HONORABLE BERNARD L. McGINLEY, Judge
              HONORABLE MARY HANNAH LEAVITT, Judge1
              HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge

OPINION NOT REPORTED

MEMORANDUM OPINION
BY SENIOR JUDGE FRIEDMAN                                       FILED: January 19, 2016


              Downingtown Area School District (District) appeals from the October
30, 2014, order of the Court of Common Pleas of Chester County (trial court)
denying District’s request to change the assessed value of property (Property) owned
by SPC 2001A-CSF-67 LLC (SPC) and leased to Lionville CVS, Inc. (CVS)
(together, Taxpayers). The trial court determined that the assessed value of the
Property was $1,244,900 for tax year 2013, $1,336,440 for tax year 2014, and
$1,336,440 for tax year 2015. We affirm.



       1
        This case was assigned to the opinion writer before January 4, 2016, when Judge Leavitt
became President Judge.
               District appealed the Property’s assessment for tax year 2013 to the
Chester County Board of Assessment Appeals (Board), which sustained the
assessment. District appealed to the trial court, which conducted a de novo hearing.2


               The Property is located at 109 East Uwchlan Avenue in Chester County
and consists of 1.706 acres of land, which is improved with a one-story, 10,125-
square-foot building and a parking lot with 59 spaces. Since its construction in 2010,
at a cost of $2,329,342, the building has been occupied by CVS pursuant to a long-
term lease with an initial term of 22 years, followed by ten five-year options. CVS is
responsible for paying the real estate taxes on the Property. SPC’s interest in the
Property is a leased fee.3 CVS’s interest in the Property is a leasehold interest.4


               The CVS lease is structured under section 467 of the Internal Revenue
Code (IRC), 26 U.S.C. §467, with a pre-paid, lump-sum payment of rent, deferred
payments, and no current monthly payment. Beginning in 2013 and for the next 10
years, the rent is $0. Thus, the Property is not income-producing.



       2
        The trial court consolidated the appeal with Downingtown Area School District v. Chester
County Board of Appeals, No. 2165 C.D. 2014. That case involves the valuation of property
occupied by Walgreens.

       3
          A “leased fee” is ‘“[a]n ownership interest held by a landlord with the rights of use and
occupancy transferred by the lease to others.’” Tech One Associates v. Board of Property
Assessment, Appeals and Review of Allegheny County, 53 A.3d 685, 688 n.8 (Pa. 2012) (citation
omitted).

       4
          “A leasehold interest is ‘[t]he interest held by the lessee (the tenant or renter) through a
lease transferring the rights of use and occupancy for a stated term under certain conditions.’” Tech
One, 53 A.3d at 689 n.13 (citation omitted).


                                                  2
                District presented the testimony of appraiser Patrick F. Noone, who
testified as to the three appraisal methods: income, sales, and cost. As to the income
approach, Noone testified that he could not make sense of the lease agreement and
did not utilize the lease for his appraisal but instead “depended on market derived
rents.” (N.T., 9/18/14, at 16.) Noone then divided an estimated single year’s net
operating income by an estimated capitalization rate to arrive at a $4,200,000 value.
(Id. at 28-29, 34.) As to the sales approach, Noone identified four comparable CVS
buildings, arriving at a $415-per-square-foot value, equal to an appraised value of
$4,400,000. (Id. at 25.) Finally, regarding the cost approach, Noone valued the
subject land as vacant, allowing for the cost of construction and depreciation, to
arrive at a value of $4,500,000. (Id. at 24-25.)


                Taxpayers presented the testimony of appraiser Mark H. Shonberg.
Under the income approach, Shonberg valued the leased fee, leasehold, and fee
simple and arrived at an appraised value of $2,170,000 rounded. (Id. at 93, 111-12.)
Under the sales approach, Shonberg compared CVS to nine other retail uses,
including drugstores. (Id. at 128-29.) However, Shonberg ultimately did not arrive at
a value under the sales approach. (Id. at 130-31.) Finally, under the cost approach,
Shonberg identified five retail land sales, two of which were within one mile of the
Property, to determine land value. (Id. at 132.) He then calculated replacement costs
and depreciation and concluded that the Property had a value of $2,220,000 rounded.
(Id. at 137.)


                The trial court stated that in accordance with Tech One Associates v.
Board of Property Assessment, Appeals and Review of Allegheny County, 53 A.3d


                                           3
685, 703 (Pa. 2012), to determine the market value of property, the leased fee and the
leasehold must be considered as a whole. The trial court determined that the income
approach to valuation did not aid the court in determining the value of the leased fee.
Under the economic realities of the CVS lease, there is no income stream for either
the leased fee or the leasehold interest. A purchaser of the leased fee would not view
the Property as income-producing because the rent is $0. Moreover, the trial court
concluded that neither expert provided the trial court with credible evidence from
which it could determine the actual value of the leasehold interest held by CVS.


               As to the sales approach, the trial court rejected Noone’s comparable of
all CVS buildings because an appraiser must consider all uses to which the Property
could be used and not just the current use. As to Shonberg’s use of the sales
approach, the trial court concluded that Shonberg properly concluded that the
Property’s highest and best use is for general retail and compared it to nine other
retail properties. The trial court concluded, however, that Shonberg only developed
the sales approach as a test and not as an indicator of value.


               Based on the evidence presented, the trial court determined that the cost
approach was the most appropriate method for valuing the Property. The trial court
credited Shonberg’s testimony because Shonberg examined the actual construction
costs of the Property and considered replacement costs for single-user retail
buildings. This appeal followed.5


       5
         This court’s review is limited to determining whether the trial court abused its discretion,
committed an error of law, or rendered a decision unsupported by the evidence. Walnut-Twelve
Associates v. Board of Revision of Taxes, 570 A.2d 619, 622 (Pa. Cmwlth. 1990).


                                                 4
               Initially, District argues that the trial court erred in determining that the
long-term lease significantly diminished the market value of the Property and by
relying on that conclusion in rejecting the testimony of District’s expert under the
income approach. We disagree.


               In a tax assessment appeal, the trial court proceeds de novo. Murtagh v.
County of Berks, 715 A.2d 548, 552 (Pa. Cmwlth. 1998). Once the taxing authority
admits its assessment into the record, it has made out a prima facie case; then the
burden shifts to the party challenging the assessment to present sufficient, competent
evidence to overcome the prima facie case. Deitch Company v. Board of Property
Assessment, 209 A.2d 397, 402 (Pa. 1965).


               In arriving at the actual value of the land under section 402(a) of The
General County Assessment Law,6 all three appraisal methods, cost, income, and
comparable sales, must be considered in conjunction with one another. The trial
court has the authority to determine which valuation method is the most appropriate
and applicable to the property. Willow Valley Manor, Inc. v. Lancaster County Board
of Assessment Appeals, 810 A.2d 720, 723 (Pa. Cmwlth. 2002).


               The trial court observed that in accordance with Tech One, 53 A.3d at
703, in determining the market value of property, the leased fee and the leasehold
must be considered. In rejecting an analysis under the income approach, the trial
court observed that Noone did not consider CVS’s leasehold interest.               Because

      6
          Act of May 22, 1933, P.L. 853, as amended, 72 P.S. §5020-402(a).



                                                5
Noone did not take into account CVS’s leasehold interest, the trial court did not err in
discrediting his testimony.


             Next, District argues that the trial court erred in rejecting Noone’s
testimony under the sales approach to valuation.        Noone testified that the best
comparables for use in valuing the Property were retail drugstores. Noone identified
four sales of comparable CVS drugstores, adjusting for age, location, and other
factors, to arrive at a $415-per-square-foot value, equal to an appraised value of
$4,200,000. District argues that Noone’s testimony was competent and credible and
his opinion as to fair market value should have been accepted by the trial court.


             As the trial court stated, however, in determining highest and best use,
an appraiser should consider not only the current use but all uses. Here, Noone
considered only the current use and compared CVS to other CVS-occupied buildings.
The trial court concluded that, as testified to by Shonberg, the highest and best use of
the Property is general retail, which includes drugstores.           Determinations of
credibility and evidentiary weight are within the province of the trial court, and we
will not disturb those determinations absent an error of law. RAS Development
Corporation v. Fayette County Board of Assessment Appeals, 704 A.2d 1130, 1137
(Pa. Cmwlth. 1997).


             Next, District argues that the trial court erred in precluding District from
cross-examining Shonberg on his credibility.        District argues that during cross-
examination of Shonberg, District sought to use another drugstore appraisal report
prepared by Shonberg’s firm to impeach Shonberg’s credibility. District sought to


                                           6
show that when Shonberg’s firm provides testimony for a taxing authority in a tax
assessment appeal of a retail drugstore, the firm takes the position that the best
comparables for valuing the property are retail drugstores.            However, when
Shonberg’s firm provides expert testimony for a taxpayer, the firm takes the opposite
approach and concludes that the best comparables are general retail stores. The trial
court, however, after objection by Taxpayers, precluded District from asking any
further questions on this matter. (N.T., 9/18/14, at 163-66.)


             This court agrees that the trial court properly denied District’s attempt to
impeach Shonberg by cross-examining him using an appraisal report prepared for a
different property and by a different expert who was not present for cross-
examination. As the trial court stated: “I am confident that I don’t particularly care
what someone else did at another time.” (Id. at 165.) An expert witness cannot
bolster his credibility by reading into the record the report of a non-testifying expert
who has not been subject to cross-examination. Cacurak v. St. Francis Medical
Center, 823 A.2d 159, 172-73 (Pa. Super. 2003).


             Next, District argues that the trial court erred in rejecting District’s
valuation and accepting Taxpayers’ valuation of the Property by means of the cost
approach. Under the cost approach, Noone estimated that the value of the land as
vacant was $2,235,000.      He also estimated that the cost of construction, less
depreciation, was $2,252,193. Thus, the land plus improvements totaled
approximately $4,500,000. District argues that Noone’s appraisal under this method
was consistent with his appraisal under the other two methods. District complains
that the trial court did not explain why it found Taxpayers’ valuation more credible.


                                           7
The trial court, however, did explain that it credited Shonberg’s assessment because
he utilized and examined the actual construction costs of the Property and considered
replacement costs for single-user retail buildings. (Trial Court Op., 10/30/14, at 16.)


             Finally, District contends that the trial court erred in crediting
Shonberg’s valuation of $2,220,000, which is several hundred thousand dollars less
than the 2001 purchase price of $2,546,495. We observe that the function of the trial
court in a tax assessment matter is not to independently value the property, but to
weigh the conflicting testimony and values expressed by the experts and, based on the
credibility of their opinions, arrive at a valuation. Gilmour Properties v. Board of
Assessment Appeals of Somerset County, 873 A.2d 64, 66 n.3 (Pa. Cmwlth. 2005).
District contends that because Shonberg testified that the value of the Property is less
than its purchase price in 2001, the trial court erred in crediting his testimony.
District, however, offers no authority for its proposition that a witness must testify
that a property has increased in value before such testimony can be credited. The trial
court did not abuse its discretion, commit an error of law, or render a decision
unsupported by the evidence in determining the assessed value of Taxpayers’
Property.


             Accordingly, we affirm.

                                       ___________________________________
                                       ROCHELLE S. FRIEDMAN, Senior Judge




                                           8
          IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Downingtown Area School             :
District,                           : No. 2182 C.D. 2014
                                    :
                        Appellant   :
                                    :
                  v.                :
                                    :
Chester County Board of             :
Assessment Appeals and              :
SPC 2001A-CSF-67 LLC                :



                                    ORDER


            AND NOW, this 19th day of January, 2016, we hereby affirm the
October 30, 2014, order of the Court of Common Pleas of Chester County.



                                       ___________________________________
                                       ROCHELLE S. FRIEDMAN, Senior Judge
