Dittmer & Ors v The Valuer-General [1991] QLC 73

f '. r., ~ / ;, t.,.( Re: An appeal against a detennination of the Valuer-General, City of Bundaberg - V90-505. LAND COURT, BRISBANE. 24th April, 1991. B.P., F.B.S. & B.H. Dittmer and Culverpoint pty Ltd v. The Valuer-General (Hearing at Bundaberg) DECISION Situated on the comer of Bourbong and Targo Streets Bundaberg, within its Central Business District, about 200 metres easterly of the Post Office, is the aged two storied Grand Hotel building, accommodated on two surveyed lots with total area of 2023 square metres. As at 31st March, 1989, the Valuer-General has assessed the unimproved value of the land, described as Lots 110 and 111 on Registered Plan B1582, County of Cook, Parish of Bundaberg, in the sum of $795,000, reduced on objection from $950,000. The owners have appealed against that decision, estimating the unimproved value to be $550,000. Valuation evidence on behalf of the appellants was led through Mr C. Browning, a registered valuer in private practice in Bundaberg, who assesses the unimproved value of the land at $455,000. Mr Browning describes the land as being situated one city block east of the Bundaberg Post Office, with frontage of approximately 50 metres and westerly aspect to Targo Street, and frontage of 40 metres and southerly aspect to Bourbong Street. He describes the improvements on the site as a double storey cavity brick hotel building and nine ground floor shops with the top floor providing guest rooms and verandahs ancillary to the hotel business. He says the building was constructed 70-80 years ago then renovations "carried out over the [1991] QLC 73 -- 1 of 14 -- 2 intervening period with the most recent about ten years ago." If there was evidence to suggest the building was a little older (80-90 years) he would not dispute such evidence. He had been informed that the building is generally subject to heavy maintenance costs, with an amount of $36,220 expended in 1987 and $26,538 in 1986 on repairs and maintenance. The building was last painted in 1981 at a cost of $15,000. Mr Browning had, during 1989, (not in connection with this matter) been instructed to assess the market value of the property. As I understood the evidence the hotel premises were leased, as were the shops (except for some vacancies), providing an estimated nett rental, on the figures supplied to him, of near $125,000 for the 1988-89 financial year. Using a capitalisation rate of 12%, which Mr Browning feels is not an unreasonable yield for older type Bundaberg city investment properties, based on local sales evidence, he had assessed the market value of the property including improvements at $1,000,000 (which in fact reflects a capitalisation rate of 12.5%). Mr Browning sees Bundaberg as a somewhat unique regional city, in that, while geographically centrally located, it has in recent times, failed to attract support for the siting of State or Australian Government regional offices. The central business heart has been adversely affected by fringe city and suburban retail and commercial development and the inner city property rental rates he says, have languished below cost of living index increases during the 1980's. Mr Browning says that there is good evidence available as to the worth of commercial land in the fringe areas, but none to establish the realistic value of the central city land. To overcome the latter problem he endeavours to establish a proper ratio of value between fringe area and central city land ''by comparison of rental rates per square metre and capitalisation rates from sales evidence." He forms the opinion from his investigations th;:it a fair average fringe area rental value of $150 per square -- 2 of 14 -- 3 metre could be adopted, for commercial developments on (coincidentally) sites worth $150 per square metre land content. He says that in comparison a fair average rental for the subject property development has been assessed at $225 per square metre, or 50% higher than fringe area rentals. He says it is logical that the land value for the subject property should then be 50% higher or $225 per square metre, totalling $455,500 for 2024 square metres, rounded to his valuation of $455,000. He then apportions his improved valuation of $1,000,000, into the components of land $455,000 and the hotel building, shops and ground improvements of $545,000. In this calculation, he values the hotel component at a depreciated value of $500 per square metre and the shop component at $275 per square metre. Mr Browning provided a schedule of seven fringe area sales from which he adopted the base fringe area land value of $150 per square metre. He then provided a second schedule of another seven sales, of improved commercial properties, the sales not being analysed except to show a calculation of the indicated improved value per square metre of land content. Of these latter sales, five were subsequent to the relevant date, three being in September/October 1989 and two in April/May 1990. Four of the subsequent date sales were in the central city commercial area, in close proximity to the subject. As the evidence unfolded there appeared to be no serious disagreement between the parties in that the central city commercial real estate market had remained relatively static in terms of value in the period covered by Mr Browning's sales. Under these circumstances, it is well held that such sales evidence is admissible as evidence, even though with the advent of annual valuations, the later sales in particular would be seen to be more relevant to the 1990 valuation. In any event one of the September 1989 sales, formed part of the Valuer-General's basis. -- 3 of 14 -- 4 It is therefore unfortunate that, except in the one common sale used by the parties, no evidence was placed before the Court as to any detailed analysis of the land content within the commercial sales used by Mr Browning. It is inferred that the value, including improvements, as indicated by one of the sales (the ex Royal Hotel) does not support the Valuer-General's valuation on that property and it may also be inferred that a similar position exists with some of the other sale properties. It may be that Mr Browning's improved valuation of the subject property is also supported by the sales, but the information is generally far too broad to be of assistance in establishing unimproved value. As an example, the ex Royal Hotel sale took place on 20th October, 1989, for $940,000. It is a large comer site in a somewhat superior location to the subject property, directly opposite the Post Office. The hotel licence was not included in the sale and the substantial two storied hotel building was subsequently refurbished as ground floor retail premises with the upper level providing restaurant and motel accommodation. Mr Browning says that, at the time of sale, the improvements would have been conservatively valued at $500,000 but provides no cogent evidence to support that statement. The Valuer-General valued the land at $808,500 as at 31st March, 1989. It transpired that the Valuer-General found the sale of no assistance, apparently due to another interpretation as to the value of the improvements. More will be said of this later. In further support of his opinion that the values applied by the Valuer-General to the central city lands were grossly excessive, Mr Browning advised that the Suncorp Building, a high rise commercial building with prime location and additional carparking areas, with a total Valuer-General's unimproved value of $1,293,000 as at the 31st March, 1989, had sold after wide exposure and public auction, on 30th May, 1990, for $1,300,000. The replacement cost of the building had been reported to be between -- 4 of 14 -- 5 $6,000,000 and $8,000,000. Reference was also made to a retail property at 121 Bourbong Street occupied by Woolworths which sold for $1,200,000 on the 21st September, 1990, with a Valuer-General's unimproved value of $878,000. Mr Browning said in contrast the suburban Sugarland Shoppingtown with an area of 6.57 hectares and a Valuer-General's unimproved value of $985,000 sold for $11,000,000 in April 1989. Now, Mr Browning's improved valuation of $1,000,000 for the appeal property was subjected to criticism in that the adopted nett rental return could have varied significantly depending on allowances which might have been made for management, depreciation, repairs and maintenance, and land tax. His adoption of a stated capitalisation rate of 12% was also criticised as being too low, although the suggestion that it should have been in excess of 20% seemed to me to be based on a fallacious perception that the income related to the hotel business, rather than rental from the leased premises. Mr Browning's apportionment of value to the improvements was also criticised as being far too high due to the age and suggested obsolescence of the building and because no consideration had been given to the value of the licence attaching to the hotel building. I have gained the impression that while there may remain criticisms of the income and capitalisation components of Mr Browning's improved valuation of the property as leased, the end result of his assessment is within the probable bounds of market value. Even so, with the complications of the age, economic life and probable obsolescence together with the licensing of the premises, I find little assistance in the check apportionment of value approach which Mr Browning uses to support his primary approach to the assessment of land value. Turning to that primary approach, again, while certain commercial logic may attend to Mr Browning's opinions, as to why rental levels should reflect land value -- 5 of 14 -- 6 component, I am not convinced that he has compared "like with like" situations, as he says he has. I would need evidence that the logic expressed in allowing comparisons of fringe area land with central city land is also a reflection of the actual market. And that, of course, is the problem in this matter. There are no sales of vacant central city commercial land, or at least no sale that either valuer involved is prepared to accept as a true reflection of market value. Evidence for the Valuer-General was given by Mr L.W. Hoult the registered valuer responsible for the relevant date valuations of the central city commercial land. He identifies the "peak" area of Bundaberg City, as being the block fronting Bourbong Street between Barolin and Targo Streets, followed in descending order of value by Bourbong Street between Targo and Tantitha Streets (in which the subject land is located) then Bourbong Street between Barolin and Maryborough Streets. Mr Browning did not disagree with this general interpretation but went further in comparing the northern and southern Bourbong Street frontages. Mr Browning sees the northern frontage of Bourbong Street in the block of the subject land as inferior to the southern frontage. Mr Hoult does not totally agree. He says that the northern and southern comers of Targa Street are of equal value but then agrees the southern frontage of Bourbong Street becomes more valuable than the northern frontage towards Tantitha Street. Mr Hoult had originally approached the central city valuation on a lineal metre of frontage basis of value, with adjustments for variance from an adopted standard depth, and matters such as comer influence, rear access and shape. He had converted the results of this basis into unit of area (square metre) calculations for the convenience of the Court, to provide more readily understandable comparisons with Mr Browning's approach. On the basis of three main sales, with support from a further two, he had -- 6 of 14 -- 7 adopted a "peak" area level of value for Bourbong St., of $30,000 per metre frontage to a standard depth of 50.3 metres then $25,000 per metre on the eastern Targa Street comers, reducing down to $14,000 and $16,000 per metre respectively on the north- western and south-western Tantitha Street comers. Westerly of Barolin Street to Maryborough Street values from $20,000 to $13,000 per metre had been applied. The subject property had originally been valued on the following effective basis: Lot 111 - ( 40 metres frontage to Bourbong Street - 25.3 metres frontage to Targa Street) 40 m @ $25,000 per lineal metre Less shallow depth factor (37.5%) Add 10% comer influence = = = On objection the valuation was reduced to a standard depth basis of $21,000 per lineal metre adjusted by the same shallow depth and corner influence factors to arrive at $577,500. $1,000,000 375 ,000 625,000 62,500 $687,500 The level of value for the Targa Street frontage had been established from a sale on the opposite frontage. The original valuation was made on the following effective basis: Lot 110 - (25.3 metres frontage to Targa Street - 40 metre depth) 25 m @ $12,000 per metre = Less shallow depth factor ( 12.5 %) = On objection this segment of the valuation was reduced to $10,000 per lineal metre with the same shallow depth factor reduction to arrive at $218,750. $300,000 37,500 $262,500 -- 7 of 14 -- 8 On a unit of area basis the valuation before the Court was: Lot 111 - 1012 square metres @ $519 per square metre = Plus 10% corner influence = Lot 110 - 1012 square metres @ $215 per square metre = Overall 2023 square metres @ $393 per square metre = $525,000 52,000 $577,000 218,000 $795,000 $795,000 Mr Hoult was criticised for adopting, in the first instance, a separate valuation approach to the separate surveyed lots. It is noted however, that if his final metre frontage value of $21,000 had been applied to the full (and more valuable) Bourbong Street frontage to the standard depth, then with the corner influence added, a signficantly higher valuation would have resulted, to the appellants' disadvantage. The full details of the sales, used by Mr Hoult, are contained in his report, a copy of which is in the hands of the appellants. Mr Hoult has provided detailed analyses of the improved sales together with actual local building costs in support of his depreciated replacement cost allowances for the various buildings. Broadly his sales evidence is as follows:- Bourbong Street values - Sale 1 - A 1012 square metre site midway along the southern frontage of the "peak" value block, sold with the "Commercial Hotel" buildings which were subsequently demolished for construction of a "Best and Less" store. The site sold in September 1987 for $1,000,000 with salvage value of the building equating demolition cost. With standard depth and rear access the sale showed $988 per square metre. A valuation as at 31st March, 1989, of $652 per square metre had been applied. Mr Hoult says this "can be regarded as an unimproved sale and is the best guide to value, however, a more conservative approach was adopted by using Sale 2 ........." -- 8 of 14 -- 9 Mr Browning says this sale is not a true reflection of market value and "nobody believes the property was worth anything like that figure." He had been told shortly before the date of sale that the property could be bought for $525,000, but he had looked at it with a developer and they couldn't make it "stand up at that figure" ($525,000). While Mr Hoult has not applied the sale figure he says it offers support to his valuation. Sale 2 - A 288 square metre site with 5.7 metre frontage also in the "peak" area of Bourbong Street, sold in March 1987 for $380,000 with a two storied building. The sale was analysed to show a land content of $716 per square metre with standard depth and rear access, and a valuation of $660 per square metre applied at the relevant date. Mr Browning said that the sale of this property was considered locally to be high at the time. He did not disagree with Mr Hoult's description of the property but says because of its small size it is not comparable to the subject. Mr Hoult says that this sale influenced the more conservative approach to the use of Sale 1, and these were the only two sales in the "peak" area. Sale 3 - A 506 square metre site with 10.12 metre frontage to Bourbong Street, easterly of Targo Street and near opposite the subject land, sold in August 1988 for $430,000 with a single storey retail building. The sale was analysed to show a land content of $548 per square metre with a standard depth and surveyed rear access. A valuation of $4 78 per square metre was applied. Mr Browning was somewhat suspicious of this sale as both the vendor and purchaser were from interstate. He commented that the vendor had spent over $100,000 on airconditioning and internal renovations and in his opinion, Mr Hoult's depreciated value of the building of $136,000 (approx) was too low. Mr Hoult said that although this site is inferior to Lot 111 of the subject aggregation the sale site with an equivalent shallow depth adjustment carries a higher pro rata value than Lot 111 which he sees as being wrong, but resulting from the reduction of the original valuation of Lot 111 on objection. -- 9 of 14 -- 10 Sale 4 - Is of a small 270 square metre site with a 6. 75 metre frontage to Bourbong Street, but westerly of Barolin Street. It sold in June 1988 for $170,000 with single storey shop premises and was analysed to show a land value of $461 per square metre to a depth of 40 metres and with rear access. A valuation of $410 per square metre had been applied. Mr Browning says it is not comparable because of its size. Mr Hoult says it is in an inferior location and the sale assisted in setting the relativity throughout the central city area. Sale 5 - is the property in Targo Street of 503 square metres which sold in May, 1989 for $257,000 with a single storied building of two tenancies. It was analysed to show a land content of $354 per square metre, with frontage of 12.6 metres, depth of 40 metres and with rear access. A valuation of $362 per square metre was applied. Mr Browning is of the opinion that Mr Hoult's depreciated value of the building of $62,000 (approx) is too low. Mr Hoult says tlirit this sale was used in the application of $215 per square metre to the Targo Street land of the subject aggregation, which is on the less valuable eastern frontage of Targo Street and with no rear access. Sale 6 - Comprises two allotments with a total area of 2155 square metres, closer than any other sale to the size of the subject aggregation but with a lesser Bourbong Street frontage and in an inferior location, also having frontage to Tantitha Street. Mr Hoult says the sale was negotiated in 1988 but the date of possession was in September 1989. The buildings comprised single storey retail and warehouse premises, purchased by an adjoining owner of hotel premises and subsequently converted into a liquor barn as an adjunct to the hotel. This sale was included in Mr Browning's second schedule of sales. It was analysed by Mr Hoult to show a land content of $203 per square metre and he applied a valuation of $190 per square metre. Mr Browning says that due to the adjoining owner circumstances and use for which the land was required, it would reflect a premium value. His schedule did not include an analysis of the sale except to show that it indicated an "improved" value of $374.47 per square metre. -- 10 of 14 -- 11 When asked the question during his examination-in-chief, whether he attached any importance to the presence of drive-in bottle departments to Bundaberg hotels, Mr Hoult replied as follows - "Yes, its the lifeline for hotels these days and certainly in the subject case" (the Grand Hotel) "that it doesn't have a drive-in bottle shop." Mr Hoult uses Sale 6 "to demonstrate that the appellants' contended value is far too conservative" but in cross-examination suggests that his application of value to Sale 6 reflected that a 7% premium might have been allowed for the possible effect of adjoining ownership. In summary I have difficulty in accepting that Mr Hoult's Sale 1 can be of any assistance in this matter when it has in reality been discarded by both valuers. It then seems to me that Mr Hoult's Sale 6 could well be tainted by the adjacency of ownership and subsequent development of the sale site. The sales evidence which remains together with Mr Hoult's c.:1 1pporting local commercial building cost evidence, indicates to me that a well reasoned approach has been taken to the task of analysing the sales for the purpose of identifying unimproved value. The sales demonstrate the difficulty complained of by the appellants in the making of comparisons between sites of differing size and shape, but Mr Hoult has shown the flexibility of considering both the unit of area basis of valuation and his preferred initial approach of a metre frontage comparison adjusted for factors historically accepted as affecting the value of city commercial retail land, such as varying depth, rear access and comer influence. He says in his experience, when better evidence of value has been available, he has perceived that larger commercial sites have sold at comparable levels of value to smaller sites which have redevelopment constraints through size and shape. He is also aware that at times premium values have been paid for smaller sites but for the purpose of aggregation of larger sites for commercial redevelopment. He also, fairly, admits that modem commercial development trends are reflecting more importance than previously -- 11 of 14 -- 12 on site area as opposed to the actual street frontage. In the end result I prefer Mr Hoult's overall approach to the assessment of unimproved value. In a situation of not having particularly strong evidence he has at least analysed sales of property with comparable location to the subject land and has supported his assessment of the value of improvements with local construction costs obtained from actual building contracts. While I have some difficulty with some of Mr Hoult's comments relative to the improved value of the subject property, it is not the improved value which has to be found, but the value of the subject property as unimproved and as defined in Section 12 of the Valuation of Land Act of 1944 (as amended). I do not interpret the definitions in Section 12 as assisting the appellants (Ground 12 of the Notice of Appeal). In these matters the Valuer-General's valuation is deemed to be correct until proved wrong (Section 13(7) of the Act). The burden of proving the grounds of appeal are upon the appellants and I am unable to find that this onus has been met, although I find the necessity to make some further comment. There are obviously problems emerging in interpretation of value in the central city commercial area of Bundaberg, as evidenced by the sales of the Suncorp and "Royal Hotel" properties, and quite likely, some of the other central city sales referred to by Mr Browning. Mr Browning is an experienced local valuer and his concerns as to the local inner city market gain support from such sales. It may well be that regardless of both valuers' comments as to the market remaining relatively static in terms of value, another market may be emerging as reflected by this evidence and which may become very relevant in subsequent revaluations. In this regard I have further difficulty in understanding some of Mr Hoult's remarks about the interpretation of sales evidence of improved property. When questioned about the Suncorp sale in particular, be said -- 12 of 14 -- 13 that he was comfortable with that sale on a capitalisation basis, on the actual income (ignoring the apparently significant vacancy factor in the office component), but not as "a summation-type valuation". He went on to say - nif you do a summation valuation and you do a capitalisation valuation you end up with completely different answers. For my purposes, I had to look at my Section of the Act that enables me to do a summation-type exercise." Later, on the same subject, he said "I've either got to look at the valuation - adopt a basis from vacant sales or otherwise I have to use improved sales. When I analyse an improved sale I have to do it on a summation basis, and if the sale doesn't meet the criteria of a summation method, well I discard the sale." When reference was made to the Royal Hotel property sale he said "It didn't stack up well either." Now, if Mr Hc, 1t is suggesting that the "summation method" reqmres replacement cost of improvements (depreciated by age and structural condition alone) to reflect added value, then I see that opinion as being in conflict with Section 12 (2)(b) of the Valuation of Land Act. It is considered that both Section 12(2)(a)&(b) of the Act are worthy of quotation here, particularly as "improved value" is defined and reference to "any hotel licence" is also made. The Act reads as follows: (2) For the purposes of this Act - (a) "Improved value" means, in relation to land, the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require; (b) "The value of improvements" means, in relation to land, the added value which the improvements give to the land at the time as at which the value is required to be ascertained for the purposes of this Act, irrespective of the cost of the improvements, including in such added value the value of any hotel licence the value of which has been included in the improved value: -- 13 of 14 -- I • 14 Provided that the added value shall in no case exceed the amount that should reasonably be involved in effecting, at the time as at which the value is required to be ascerlained for the purposes of this Act, improvements of a nature and efficiency equivalent to the existing improvements; I do not interpret such definitions for the purpose of the Act to be in conflict with practical commercial interpretation in the circumstances where the added value may be ks.s. than a depreciated replacement cost. As mentioned earlier, if it was considered to reflect "improved value" exclusive of a hotel licence, the sale of the "Royal Hotel", (with proper consideration to added value of the improvements) may have been of assistance in this matter but, in any event, may be of assistance in subsequent considerations of unimproved value of central city Bundaberg lands. Certainly, it may be expected that the "added value" of improvements will need more consideration in the future than has heen addressed by both valuers in this matter. For the reasons given before, and on the weight of analysed evidence, the appeal is dismissed and the valuation of the Valuer-General affirmed. (R.E. Wenck) Member of the Land Court -- 14 of 14 --