Restrictions of Low-Income Housing Must Be Considered in Valuing Kentucky Property

The Kentucky Board of Tax Appeals recently ruled that an appraiser valuing a LIHTC site must consider the rental restrictions placed on the site. The board considered the assessed value of a 20-unit site subject to the federal LIHTC income and rent restrictions. The county’s valuation administrator assessed the site at $1.34 million for the 2014 tax year. The Board of Assessment Appeals lowered this assessment to $1,040,000, and the valuation administrator assessed the complex at $1,040,000 for the 2015 tax year. The local board upheld the valuation administrator’s 2015 assessment. The taxpayer appealed both the 2014 and 2015 assessments to the board, claiming a value of $580,000 for tax year 2014 and $585,000 for tax year 2015.

The valuation administrator’s appraisal was based upon treating the site as a regular free-market property, although the valuation administrator’s own witness acknowledged that free-market properties and LIHTC properties are materially different. The owner’s appraiser, by contrast, had significant experience appraising LIHTC sites and valued the property using an income approach. Although he testified that there were not sufficient sales of comparable low-income housing projects in the area to enable him to undertake a supporting comparable sales approach, he did testify that he used at least some regional sales of low-income housing projects and other non-low-income units in order to arrive at his capitalization rate of 8 percent. However, he didn’t present backup sales information to support his capitalization rate calculation.

The board held that the owner met its burden of proving that the valuation administrator’s assessment overvalued the property and supported its claimed value with competent evidence from an appraiser with significant experience valuing the type of property at issue. The board stated that restrictions placed on low-income housing complexes must be considered by the assessor in the valuation of the property. The board also noted that it had no evidence before it upon which to fix the fair cash value of the property other than the testimony introduced by the taxpayer. Therefore, the board held the site should be valued at $580,000 for tax year 2014 and $585,000 for tax year 2015 [Brandyview Apts., Ltd. v. Madison Cnty. Property Valuation Adm’r, Feb. 25, 2016].