August 16, 2011 - Report On Adams County Assessor Gil Reyes To The Colorado State Board of Equalization

John W.
Hickenlooper, Governor Department of Local Affairs Reeves Brown, Executive Director DIVISION OF PROPERTY TAXATION JoAnn Groff, Property Tax Administrator
State of Colorado
Final Report and Recommendations

Resulting from Investigation of Adams County Taxpayer Complaints
Filed February 2011 Pursuant to 39-2-111, 39-2-112 and 39-2-114 C.R.S.
Presented to the
Colorado State Board of Equalization

by JoAnn Groff Property Tax Administrator August 16, 2011
Adams County Taxpayer Complaint 2011
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Complainants: 2/ 7/2011 2/17/2011
Gil Reyes, Adams County Assessor, filing as an Adams County taxpayer. Adams County Taxpayers: Noel Busck, Mrs. Susan Busck, Mrs. Jan Powlowski, Mrs. Margaret Rodriguez, Mr. Robert Rodriguez, Ms Louise Valdez, and Mrs. Theresa Garcia
Statutory Authority: 39-2-111, C.R.S. Complaints. The administrator shall examine all complaints filed with him wherein it is alleged that a class or subclass of taxable property in a county has not been appraised or valued as required by law or has been improperly or erroneously valued or that the property tax laws have in any manner been evaded or violated. Complaints shall be in writing and may be filed only by a taxing authority in a county or by any taxpayer. Complaints may be filed only with respect to property located in the county in which the taking authority levies taxes or in which the taxpayer owns taxable property. If the administrator finds the complaint is justified, he may use his findings as the basis for petitioning the state board of equalization for an order or reappraisal pursuant to section 39-2-114. 39-2-112, C.R.S. Assessor to appear when. The property tax administrator may require any assessor to appear before him at any meeting to ascertain whether he has complied with the law in appraising and valuing the taxable property located in his county. Statutory Focus: ....that the property tax laws have in any manner been evaded or violated. Specifically, whether properties owned by certain persons were intentionally valued at a level below that required by the property tax laws of the State of Colorado. Division of Property Taxation (division) Personnel Assigned: Cherice Kjosness, Lead Investigator and Appraiser for Residential class Kyle Hooper, Appraiser for Vacant and Agricultural classes Curt Settle, Appraiser for Commercial and Industrial classes Scope of the Investigation: Identify all persons who made monetary contributions to the Committee to Elect Gil Reyes Assessor campaign fund from 2006 through 2010. Identify target properties in Adams County: Properties owned by those persons contributing or were linked to contributors, such as being a principal in the company or organization Properties which were personally handled by Gil Reyes during appeal periods 2006 through 2010. (Both for contributors and non-contributors) High dollar properties which remained at the same value for five or more years
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Properties owned by contributors that received refunds or abatements between 2005 and 2010.
Make an independent comparison analysis for those properties to determine if there is evidence that the values assigned were significantly below the proper level of value for any of the years 2005 through 2010. It is important to note that the analyses performed were compared against classes and subclasses of properties and that no individual appraisals or value determinations were made. The only laws that this investigation will be concerned with are those in Title 39 of the Colorado Revised Statutes. More specifically: 39-1-102, C.R.S. regarding value of agricultural land for ad valorem purposes. 39-1-103(5)(a), C.R.S. regarding determining the actual value of properties for ad valorem purposes. 39-1-104(10.2), C.R.S. regarding the proper level of value for the relevant year(s). 39-1-105, C.R.S. regarding date of assessment. 39-1-103, C.R.S. regarding the value of vacant land. 39-1-103(14), C.R.S. regarding application of the present worth methodology for vacant land. 39-5-101, C.R.S. regarding the listing of property. 39-5-123(1)(a), C.R.S. regarding the abstract of assessment. Conclusions and Recommendations of Investigation: It is the conclusion of the division that there were enough anomalies discovered during this investigation to indicate certain property tax laws were violated by the Adams County Assessors office with regard to donor properties. Those statutes are 39-1-103(5)(a), C.R.S.; 39-1-104(10.2), C.R.S.; and 39-5-123(1)(a), C.R.S. In most cases these violations do not warrant a request for a reappraisal order. However, the Property Tax Administrator is requesting that the State Board of Equalization issue an order of reappraisal for the warehouse subclass for the 2011 assessment year. (The Board ordered the reappraisal for 2012) In addition, the report recommends: two properties be reviewed by Adams County in the residential class of property; that Adams County undertake a study to reduce the number of Land Economic Area (LEA) codes for their vacant land valuation model to obtain greater consistency in applying land values; and that Adams County provide more specific detail when disqualifying sales and scrutinize these sales more diligently. It is further recommended that the county work to develop an income approach model for the mass appraisal of warehouse properties; and, finally, it is recommended that the county focus on identifying more qualified warehouse sales so that, at a minimum, these sales will serve as a test of the reasonableness of the value indications by the cost approach and the income approach.
Adams County Taxpayer Complaint 2011 PROCEDURES
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PROCEDURES As a starting point, lead investigator, Cherice Kjosness, Property Tax Specialist IV for the Division of Property Taxation, accessed the Colorado Secretary of States website and identified all contributors to the campaign fund of Committee to Elect Gil Reyes Assessor from the time he declared as a candidate for the 2006 General Election until the final report on the 2010 General Election. A master list of contributors was created and the assessment records were examined to identify the target properties as stated in the Scope of Work. Once identified, the properties were sorted into three major classifications: Residential, Commercial/Industrial, and Vacant/Agricultural. Aerial assessment maps were requested and provided by the Adams County Geographical Information System department. Through a direct access terminal, assigned values for each target parcel for tax years 2005, 2007, 2009, 2010 were researched and listed on the Excel spreadsheets. Also examined from this terminal were the appeal records for those tax years, and indications of classification and or value changes were listed. Historical data for the target parcels, sale data and procedures were requested and provided by the Assessors personnel which included: All qualified and non-qualified sales of vacant land parcels which occurred between 1/1/2004 and 12/31/2009 for specific land economic areas. View History Report printouts for the Appraisal Tab (already programmed by IT). The dates that must be included are 1-1-2004 through current. All attached Object files tax years 2005 through 2010 Photos and Sketches All Notices of Value for 2004 through 2010 All Notices of Determinations for 2004 through 2010 Tax roll values for tax years 2004 through 2010 For all parcels with uses identified as Mega Warehouse, Distribution Warehouse or Storage Warehouse, copies of: Property Profile Report Private Notes Screen prints of main parcel screen summary page with values across the bottom of screen showing Land, Cost, Market, Income, and Reconciled for tax years 2005, 2007 and 2009 Detailed description of the Adams County Assessors sales verification and qualification process. Identification of who performed the sales qualification and verification functions for residential, commercial/industrial, and vacant land classes for the 2005, 2007, and 2009 reappraisals and whether that person is currently an employee of Adams County. Warehouse sales used for the 2003, 2005, 2007, and 2009 reappraisals and written documentation regarding the confirmation of each of these sales that supports the conclusion of why they were or were not qualified.
Adams County Taxpayer Complaint 2011 PROCEDURES
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In addition, specific deeds were requested and provided by the Adams County Clerk and Recorder; specific amounts rebated or refunded on identified abatement petitions by the Adams County Treasurer; and supporting documentation for specific abatement petitions by the Adams County Assessor. Finally, 2005 Notices of Value and Notices of Determination for warehouse properties which were appealed but which did not belong to any of the contributors were requested and provided by the Adams County Assessors Office. In order to have independent verification of sales data, the Property Tax Administrator requested, and was granted permission by the Colorado Legislative Council, to obtain the Adams County master sales lists provided to the Property Assessment Auditor for tax years 2005 through 2010. Where appropriate, valuation ranges of similar properties from adjacent Denver County were examined and compared to the valuation ranges of Adams County target properties.
Adams County Taxpayer Complaint 2011 FINDINGS
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FINDINGS The website of the Colorado Secretary of State contained reports of the campaign contributions as follows: 2006 98 contributors gave a total of $37,500 2007 - 1 contributor gave a total of $ 500 2010 - 2 contributors gave a total of $ 1,000 $ 39,000 A total of 1639 parcels were identified as properties owned by contributors or linked to contributors, such as being a principal in the company or organization. The appeals records of Adams County indicate the Assessor, Gil Reyes, personally handled appeals as shown below: 2005-2007 Not available as Adams County was on a different software system. 2008 44 parcels, 5 or 11.36% of which were owned by persons who contributed to his campaign or were linked to a contributor. One account was adjusted and three were held to the prior years value. 2009 130 parcels, 86 or 66.15% of which were owned by persons who contributed to his campaign or were linked to a contributor. Twenty-two accounts were adjusted and 84 were held to the prior years value. 2010 14 parcels, 2 or 14.29% of which were owned by persons who contributed to his campaign or were linked to a contributor. One was adjusted and one was denied. Overall, 49.5% of the appeals handled personally by Mr. Reyes were for properties of contributors and only one of those appeals was denied. The abatement records of the Property Tax Administrator, which approved abatement/refund petitions exceeding $1,000 in tax, showed a total of 246 abatement petitions abating a total of $4,315,489 in taxes from 2005 through 2010. Within those, 20 petitions abating a total of $848,694 in taxes could be associated with persons or entities on the master contributors list. Most of these were the result of adjustments being made during the appeal period and then abatements being filed for prior years to attain the same value as gained through appeal. In the Adams County RealWare computerized assessment system, as supplied by Colorado Customware, Inc., there is a function, known as view history, which records the date, time, and person making any change to any record in the system, and the assigned value at the end of each editing session. It also records the value of the land and improvements from the Cost Approach valuation module, total value from the Market Approach and Income Approach modules, when any mass calculation is done using finalized statistical models. This function allowed the division to determine who on the assessors staff had accessed each of the target properties and what changes were made after each mass calculation was performed. The Reconciled Value field on the system acts as an override to the mass calculation, and the view history allowed the division to see any override values that were placed on the property and who had placed them. Although the division found Mr. Reyes system identification on appeal records and determinations, they did not see any instances where the values were actually entered into the system by him whether it was in response to an appeal, an abatement petition, or other adjustment. The division concluded that either the appeal system performed the necessary file maintenance automatically or the input was done by administrative or appraisal staff subsequent to the appeal decision.
Adams County Taxpayer Complaint 2011 PROPERTY CLASS ANALYSIS Residential Properties
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RESIDENTIAL A total of 78 residential improved parcels were identified. Historical values for 2005, 2007 and 2009 were examined on all parcels and the neighborhood assignment was confirmed to be correct according to the neighborhood map supplied by John Schaul, Deputy Adams County Assessor. The annual 2009-2010 Property Assessment Study examined the marketing areas (neighborhoods) for Adams County and did not report any discrepancies. Therefore, no analysis of the neighborhood assignments was conducted. The view history records were examined for all 78 properties. It was determined that if the neighborhood assignment was verified as correct, and the final value of the property in each year equaled that of the mass calculated market value for the parcel, that parcel was valued at the correct level of value for each of the years. For additional support of that determination, ranges of values for each of the subject areas were developed using sales data provided by Wildrose Appraisal, Incorporated, the 2007-2010 Property Assessment Auditor, and Multilist, Incorporated. If the final values fell within the determined range for the neighborhood, no further analysis was performed on those properties. Seventeen residential properties fell out of the above parameters. On 15 of the 17, a comparison of contributor versus non-contributor values for 2009-10 and 2011 was conducted. Properties in the same subdivision and of similar size were selected. The findings were not conclusive, but can be viewed in the chart at the end of this section. For two properties in the Riverdale Peaks subdivision, a different sort of analysis was required. The typical transaction was to purchase the lot and then construct a custom home. Therefore, direct comparisons, such as were done for the other properties, were not possible. These properties were the first constructed in the subdivision and are located on larger parcels on the highest elevations. The site sizes are 5.17 and 3.18 acres respectively, but these properties were valued about the same as properties in the subdivision immediately to the north, which were on lots of .71 to 1.4 acres with a much lower elevation and more restricted views. (See photos at the end of this section) In addition, these properties had remained at the same value, being two of the properties marked as hold by Mr. Reyes. Although there were insufficient sales to indicate a market trend of improved property, an analysis of the sales of lots indicated an average market appreciation of 15% per year. Applying this appreciation to the 2006 values of the two properties indicated the following:
2006 157133013007 12501 Riverdale Road, Brighton $1,078,132 2007 $1,078,132 $1,239,852 2008 $1,078,132 $1,425,830 2009 $1,078,132 $1,639,704
157133013006
8777 E. 127th Ct., Brighton
$980,364
$980,364 $1,127,419
$980,364 $1,296,531
$980,364 $1,491,011
The estimated market values are more indicative of premier custom homes on acreages in the north metro area, and are still below the highest selling price of a home in Adams County for the 2009-2010 base period. If one were to assume that the 2005-2006 values were correct, this would indicate that the assigned values of $1,078,132 and $980,364 were more than $500,000 below the correct level of value.
Adams County Taxpayer Complaint 2011 PROPERTY CLASS ANALYSIS Residential Properties
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Even considering the softening market for custom homes, the final 2011-2012 assigned values for these properties of $1,094,000 and $855,000 would appear to be low. CONCLUSION The undervaluation of two single family residential properties does not impact the overall class value sufficiently to recommend an order of reappraisal. RECOMMENDATION The division recommends a review of these residential properties.
Adams County Taxpayer Complaint 2011 ADDENDA Residential Properties
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Average Difference between Contributors Values and Non-Contributors Values

Subdiv Name Cam Mar Hillsdale Rolling Hills Kokai The Ranch 2010 -22.80% 8.72% -2.41% -2.65% -5.80% -24.47% -16.61% -12.39% 0.41% -6.54% 0.23% 12.51% -3.17% 1.19% 2011 -23.93% 9.20% -2.81% -5.05% -4.30% -23.30% -11.08% -0.51% 0.44% -0.19% -3.53% 6.84% 1.22% 3.32%
The Village Victoria Heights West The Windings Greens at Buffalo Run Foxton Village
Numbers shown in red indicate that the contributor properties were valued higher than the average of the non-contributor properties.
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Riverdale Peaks
Gleneagle Estates to North across 128th Avenue
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Adams County Taxpayer Complaint 2011 PROPERTY CLASS ANALYSIS Vacant and Agricultural Properties
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VACANT AND AGRICULTURAL The agricultural and vacant land analyses contained a total of 1,465 parcels. Because of the significant number, the vacant land analysis reviewed value trends as opposed to individual parcel values and the agricultural review used a large random sample to represent the class as a whole. AGRICULTURAL CLASSIFICATION ANALYSIS A random sample of the agricultural parcels contained on the contributor list was physically inspected. The selected parcels represented all geographic areas of Adams County, both urban and rural. Most inspected parcels appeared to be classified correctly. There were a couple of subdivisions (Brighton Crossing and The Preserve) located in the area around Brighton that may have been classified incorrectly in the past, but were corrected for the current appraisal year. A couple of parcels exhibited no present agricultural activity and are currently classified as agricultural parcels. These parcels were inspected in April and there is no conclusive proof that the lack of present activity supports a classification other than agricultural. There may have been agricultural activity in past and it is uncommon to physically inspect all parcels every year. There is no direct evidence to suggest that any historical or current classification was erroneous or intentionally misleading. VACANT LAND ANALYSIS The main focus was to determine whether the values assigned to the contributor parcels were different than those of non-contributor parcels. A secondary focus was to determine whether there were any valuation trends applied to the contributor parcels that were inconsistent with valuation trends for non-contributor parcels. The state auditor has found that this class of property in Adams County had passed all statistical and procedural requirements for the appropriate time frame. A basic assumption made prior to the sales analysis was that the sales confirmation used by the county was correct in its review and disqualification process. There appeared to be inconsistencies with the sale disqualification process, but there was no direct evidence of intentional error. Vacant land sales data for all appropriate Land Economic Area (LEA) codes was acquired from Adams County. The LEA codes were ascertained from the original list of contributor parcels. LEA codes represent separate valuation models and are a way to assign the same value to large groups of parcels based on homogeneity and location. All nonqualifed sales were removed from the data and a unit of comparison trend analysis was performed on the qualified sales for each LEA code over the 2004-2009 time frame. This was to establish whether or not any significant trends were apparent over the five-year period. The data suggests there may have been a minute upward trend, but nothing substantive enough to mandate specific increases in base rate value during the 2004-2009 time frame. Further trend analysis was performed which included some of the inconsistent disqualified sales in each LEA. There was still no proof of a strong enough trend to facilitate mandatory increases in land values.
Adams County Taxpayer Complaint 2011 PROPERTY CLASS ANALYSIS Vacant and Agricultural Properties
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Based on these findings, a review of all percent change in values for LEA codes between reappraisal years 2007-2009 was performed. There was no consistent pattern of percent change to the LEA codes for that time frame. This is not unusual, in that Adams County has over 2500 LEA codes. In a typical reappraisal cycle, it would be practically impossible to review and adjust all 2500 plus LEA codes. All value assignments and changes were deemed appropriate by the state audit and there is no evidence to suggest a contrary conclusion. A brief review of the vacant land present worth process was performed on the contributor parcels. All of the adjustments placed on eligible parcels appear appropriate. CONCLUSION All values associated with the contributor parcels were found to be treated consistently with noncontributor parcels. There was not sufficient evidence to suggest misleading or erroneous values placed on the contributor parcels. RECOMMENDATIONS It is strongly advised that Adams County undertake a study to reduce the number of LEA codes for their vacant land valuation model to obtain greater consistency in applying land values. It is also advised that Adams County provide more specific detail when disqualifying sales and scrutinize these sales more diligently.
Adams County Taxpayer Complaint 2011 PROPERTY CLASS ANALYSIS Commercial/ Industrial Properties
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COMMERCIAL/INDUSTRIAL A total of 96 properties identified as being owned by contributors were in the commercial/industrial subclass. Fifty of these properties were warehouses and the remaining 46 were a variety of properties including office, retail, motel, mixed use, auto dealership, restaurant, bank, service garage, tavern, and commercial. The following analysis focuses on the warehouse properties. Although anomalies may exist with the other commercial properties, that analysis would have required individual property appraisal which was outside the scope of this investigation. The warehouse properties were reviewed to determine: 1) Whether properties owned by contributors (contributor properties) were valued in a similar manner to properties owned by non contributors (non-contributor properties), and 2) Whether the warehouse subclass of properties was valued at the correct level of value. The years examined were 2005 (appraisal date June 30, 2004), 2007 (appraisal date June 30, 2006), and 2009 (appraisal date June 30, 2008). As this project progressed, the 2011 values (appraisal date June 30, 2010) became available, and were also reviewed. IMPORTANT NOTE: No property specific appraisals were completed as part of this investigation. The accuracy of this analysis and the resulting conclusions assumes that the information provided by Adams County (the county) was correct. BUILDING TYPE (USE) The initial step was to sort the warehouse properties by use. The countys Property Profile Sheets categorized warehouses by three types: storage, distribution, and mega. Review of the data indicates no perceivable value differences associated with the type of warehouse. CONTRIBUTOR NON CONTRIBUTOR EQUALIZATION The next step was to begin a systematic comparison of the treatment of contributor properties to non-contributor properties. (A summary chart identifying the non-contributor properties reviewed is located in the Addenda.) The contributor properties that are the subject of this analysis are identified on the summary chart that follows. Following that chart is a map that shows the general location of these properties. With the exception of one group of properties, the contributor properties are located in the East I-70 industrial corridor. This is the largest and most significant warehouse submarket in Metropolitan Denver. The I-70 corridor properties can be grouped by three distinct areas: 1) Aurora Business Center/Majestic CommerCenter northeast of I-70 and Tower Road, 2) Upland Park, Filing II southeast of I-70 and Airport Boulevard, and 3) Upland Park/Gateway Park south of I-70 between Airport Boulevard and I-225. The I-70 corridor is a homogeneous warehouse area. Most buildings are of tilt-up concrete construction, with dock-high and drive-in loading, a small amount of office finish, and adequate staging area. These industrial parks are attractively landscaped and have adequate street width to easily accommodate large truck movement. The properties are generally of newer construction as you move east through the corridor. The newer construction is generally higher cube buildings with clear height increasing from 20 feet near I-225 to a maximum of 36 feet in the Tower Road area.
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A fourth concentration of contributor properties is located northeast of Colfax Avenue and Chambers Road. These are smaller properties, many of metal construction, and most with a limited number of drive-in loading doors. These are typically older properties with lower, 12-14 foot clear height. Both the contributor and non-contributor properties were grouped by these four locations. Summary charts of each of these groupings of properties follow the discussion of that submarket. In addition to location identifiers, these charts show the following: land area; building area; land to building ratio; year of construction (YOC); and the 2005, 2007, and 2009 final county value on a per square foot basis. Because land is a large component of value with warehouse properties, any property with a land ratio in excess of 4.0 was considered atypical of the East I70 corridor and was eliminated from consideration. Likewise, any property with a land ratio in excess of 5.0 was considered atypical of the Colfax and Chambers area and was eliminated from consideration. Because Mr. Reyes had made public statements that some of the contributor properties were valued using the Assessors Reference Library Volume 3, Chapter 7, pages 7.13 through 7.17, long-term, non-market lease procedure, the county was asked to identify which properties were valued using that procedure and to provide the calculation implementing that procedure along with the lease that served as the basis for determining that that procedure was appropriate. The county responded that this procedure would appear in the Object Sheets that are a part of each property record. The division reviewed the Object Sheets for each contributor property and found none where the long-term, non-market lease procedure was used. This result was reported to the county and they were again asked to review their information and to report to the division any properties using the long-term, non-market lease procedure. Deputy Assessor Schaul offered to interview staff appraisers on this issue, and reported to the division that they knew of none of the contributor properties that were valued using this procedure. Based on this information, the division determined that all of the values reported for the contributor properties should be at market value levels with no adjustment for non-market leases. Majestic/CommerCenter Submarket A map and summary charts of the Contributor Properties and the Non-Contributor Properties in Majestic CommerCenter follow. The Mean or Average for each of the significant categories is located at the bottom of each chart. The value per square foot average is non-weighted. The following table shows the results of this comparison. The difference between the average value of the contributor properties and non-contributor properties is calculated by comparing the value difference to the non-contributor average value. MAJESTIC/COMMERCENTER CONTRIBUTOR NON-CONTRIBUTOR $28.68 $37.84 $28.68 $32.80 $29.21 $35.20
YEAR 2005 2007 2009
DIFFERENCE -24% -13% -17%
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Additional analysis has been performed to determine if there is some obvious reason for this value difference. As noted previously, warehouse properties in this area are homogeneous. However, some features that could affect the building value per square foot are the amount of land associated with a property (more land should equate to a higher building value per square foot), age of the property (newer construction typically sells for more), and building size (smaller buildings typically sell for a higher price per square foot). Non-contributor properties in Majestic CommerCenter had a greater land area indicating their value should be higher, but were larger and older buildings indicating their value should be lower. These factors are generally offsetting with the result that there should be no significant difference between the value of contributor properties and non-contributor properties. The clear conclusion from this analysis is that contributor properties were incorrectly valued compared to non-contributor properties.
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Upland Park II/Gateway Park Submarket (E/S Airport Blvd) A map and summary charts of the Contributor Properties and the Non-Contributor Properties in the Upland Park II/Gateway Park submarket follow. The same comparison process described previously was used to compare values in this submarket. The following table shows the results of this comparison. UPLAND II/GATEWAY PARK (E/S Airport Blvd) CONTRIBUTOR NON-CONTRIBUTOR DIFFERENCE $29.83 $34.97 -15% $31.62 $40.56 -22% $31.62 $42.62 -26%
YEAR 2005 2007 2009
Again, additional analysis has been performed to determine if there is some obvious reason for this value difference. Non-contributor properties in Upland II/Gateway had a greater land area and a smaller average building size indicating that their value should be higher. The average age of both groups of properties was the same. The conclusion from this analysis is that the noncontributor properties would be expected to be valued somewhat higher than the contributor properties. However, the indicated difference is greater than would be expected. The conclusion from this analysis is that contributor properties were incorrectly valued compared to non-contributor properties.
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Upland Park Submarket (W/S Airport Blvd) A map and summary charts of the Contributor Properties and the Non-Contributor Properties in the Upland Park submarket follow. The same process described previously was used to compare values in this submarket. The following table shows the results of this comparison. UPLAND PARK (W/S Airport Blvd) CONTRIBUTOR NON-CONTRIBUTOR $34.26 $33.19 $36.33 $32.65 $36.83 $31.43
YEAR 2005 2007 2009
DIFFERENCE +3% +11% +17%
Again, additional analysis has been performed to determine if there is some obvious reason for this value difference. Non-contributor properties in Upland had less land area and were larger and older buildings indicating that their value per square foot should be lower. The conclusion from this analysis is that the non-contributor properties would be expected to be valued lower than the contributor properties. There is no indication from this analysis that this group of properties was incorrectly valued.
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Chambers and Colfax Submarket A map and summary charts of the Contributor Properties and the Non-Contributor Properties in the Chambers and Colfax submarket follow. The same process described previously was used to compare values in this submarket. The following table shows the results of this comparison. CHAMBERS AND COLFAX CONTRIBUTOR NON-CONTRIBUTOR $33.28 $42.94 $32.66 $45.21 $32.66 $46.34
YEAR 2005 2007 2009
DIFFERENCE -23% -28% -30%
Again, additional analysis has been performed to determine if there is some obvious reason for this value difference. Non-contributor properties at Chambers and Colfax had the same land area, similar average building size, and were of similar age. The conclusion from this analysis is that the non-contributor properties would be expected to be valued the same as the contributor properties. The conclusion from this analysis is that contributor properties were incorrectly valued compared to non-contributor properties.
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2005 NOTICE OF DETERMINATION (NOD) ADJUSTMENTS Significant changes to warehouse values occurred during the 2005 protest period as evidenced by comparison of the Notice of Value (NOV) with the NOD for each warehouse property. The NOD adjustments for the contributor properties were compared with the NOD adjustments for the noncontributor properties. The charts summarizing those adjustments follow. That analysis indicates that 96 percent of the contributor properties protested their value, all received an adjustment, and the average adjustment was a decrease in value of 45 percent. In comparison, 70 percent of the non-contributor properties protested their value, all but one received an adjustment, and the average adjustment was a decrease in value of 39 percent. The conclusion from this analysis is that the difference in treatment of the two groups of properties slightly favors the contributor properties, but this difference is not so significant as to indicate incorrect treatment of either group.
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CONTRIBUTOR PROPERTIES - 2005 NOD ADJUSTMENT

Account No. R0084041 R0110355 R0084111 R0108351 R0108350 R0115331 R0115412 R0111914 R0085905 R0085906 R0118159 R0111559 R0111560 R0111562 R0132031 R0132030 R0145680 R0111258 R0084069 R0108359 R0113897 R0084258 R0085908 R0085909 R0085913 R0085916 R0085918 R0085919 R0085922 R0085925 R0085926 R0085928 R0085936 R0085938 R0085939 R0085940 R0085944 R0085945 R0085946 R0085947 R0085948 R0085949 R0085950 R0085952 R0085959
No value shown Number imputed
Original Value $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 11,302,780 9,361,480 4,812,580 7,047,030 5,134,760 7,424,980 9,639,490 2,004,410 771,920 1,092,420 3,746,710 8,286,540 13,316,400 10,505,400 12,794,200 10,259,530 7,820,480 8,204,480 8,464,090 7,095,030 5,514,770 3,778,830 916,540 886,530 1,128,600 902,560 2,032,300 1,075,430 523,220 451,340 453,750 614,870 309,560 343,000 306,840 615,300 385,290 306,940 518,860 456,380 460,900 703,880 526,790 431,090 406,790 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
NOD Value 5,840,010 5,025,010 3,464,000 5,193,000 3,780,000 3,980,000 5,900,000 1,305,630 557,160 724,780 2,447,600 3,609,210 5,838,890 4,355,910 6,786,000 6,120,000 4,380,790 4,234,000 4,400,010 2,900,000 2,570,000 2,700,010 613,000 886,530 752,000 605,510 1,287,620 649,370 343,620 451,340 367,840 447,700 309,560 188,060 235,910 386,850 182,330 163,600 232,580 310,510 266,130 310,870 320,080 295,350 280,690
% Change 48% 46% 28% 26% 26% 46% 39% 35% 28% 34% 35% 56% 56% 59% 47% 40% 44% 48% 48% 59% 53% 29% 33% 0% 33% 33% 37% 40% 34% 0% 19% 27% 0% 45% 23% 37% 53% 47% 55% 32% 42% 56% 39% 31% 31% 45%
$ 173,135,070
(all received adjustments)
$ 95,999,060
(43 of 45 accts [96%] protested)
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YEAR OVER YEAR VALUE CHANGE One observed trend is that values of the contributor properties did not change between 2005 and 2009. The stable trend for the contributor properties has been compared to the non-contributor properties. This comparison is based on the same locational groupings as discussed previously. Graphs that illustrate these value trends follow. The values of the contributor properties in the Majestic CommerCenter/Aurora Business Center submarket were not changed between 2005 and 2009. In contrast, most of the non-contributor properties exhibited value changes, both increasing and decreasing. Values in the Upland and Upland/Gateway submarkets exhibited similar trends for both contributor and non-contributor properties. This trend was an increase between 2005 and 2007, then the same value for 2009. For the most part, the values of neither the contributor nor the non-contributor properties were changed in the Colfax and Chambers submarket between 2005 and 2009. The conclusion from this analysis is that with the exception of the Majestic CommerceCenter/Aurora Business Center submarket, contributor and non-contributor properties were treated in a similar manner with respect to year over year value changes. Additional review was undertaken to determine if this stable value trend was appropriate. The county bases its mass appraisal values on the cost approach. (They reported that this is the only approach available to them because of the lack of warehouse income information and the lack of qualified sales.) It is not surprising that values remain generally level when the cost approach is the basis for valuation. The cost approach can be influenced by changes in land value, but increases in the cost of construction are often offset by depreciation. Several other information sources were reviewed for information on warehouse value trends during the 2005 to 2009 time period. The Property Tax Administrators Annual Report to the General Assembly and the Governor was reviewed. It reports values for the Commercial Warehouse/Storage Subclass by county and with a state total. For the 2005 to 2007 time frame it showed a statewide average value change per parcel of +22% compared to Adams County that had an average value change of +11%. For the 2007 to 2009 time frame the statewide average value change per parcel was +5% compared to Adams County at -6%. Other sources reviewed were the Frederick Ross Industrial Market Report, the Korpacz Real Estate Investor Survey, and the Warehouse Review for Denver County. All of these sources reported similar trends, i.e., a recovering market in 2004, followed by a strong upward trend from 2005 to 2007, with a slowdown in 2008. A random check of seven warehouse properties in the East I-70 Industrial Corridor, but located in Denver County, was conducted. These properties have similar characteristics to the warehouse properties adjacent to the east that are located in Adams County. On average, the value of these properties increased by 15 percent between 2005 and 2009.
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The conclusion from this information is that it was unexpected to see no value change for warehouse properties between 2005 and 2009. SALES INFORMATION No independent sales confirmation was undertaken as part of this project. Adams County sales data for the years in question was obtained from the assessment auditor. Only 9 qualified warehouse sales were reported for the 2005 values, 11 qualified sales were reported for the 2007 values and 6 qualified sales were reported for the 2009 valuation. From this qualified sales data fewer yet were available to help value the large warehouse properties in the East I-70 corridor. For example, only one sale of a warehouse property larger than 60,000 square feet was qualified for the 2005 valuation. This small quantity of qualified sales was not expected for the largest warehouse submarket in the metropolitan area and during what was reported to be a time of strong sales activity. In contrast, Denver County reported 118 qualified warehouse sales for the 2005 valuation, 125 qualified warehouse sales for the 2007 valuation, and 125 qualified warehouse sales for the 2009 valuation. Identifying more qualified warehouse sales would have provided the county with a better indication of warehouse value trends. INCOME APPROACH The county reported that they did not use the income approach to help set their mass appraisal warehouse values because of a lack of lease information. However, this approach was considered when a valuation was protested. An income approach worksheet was included with the countys property records for 13 of the contributor properties for 2007. The input parameters varied dramatically on these 13 worksheets. Most startling was the overall rate that ranged between 9 and 13 percent. By comparison with Adams Countys neighbor to the west, Denver County bases their warehouse values on the income approach. Allocating more effort to developing a warehouse income approach at the mass appraisal level would also have provided the county with a better indication of warehouse value trends.
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OTHER OBSERVED ANOMALIES Majestic CommerCenter/Aurora Business Center The Accounts Notes page associated with the county information for each contributor property in this submarket included the comment 2003-PER GIL. The value that resulted from that comment remained unchanged on each property through 2009. (A copy of a representative Accounts Notes page is included in the Addenda.) Three buildings were completed in this submarket, two of which were first valued in 2008 and one in 2009. Again, the Accounts Notes included a comment that the values were set by Mr. Reyes. The resulting value for these new buildings was 34 percent below the value estimated by the cost approach. This is an unusual relationship for a new building. Typically a new building should be worth at least what it cost to build. An argument can be made that the developer simply made a mistake and that the building should not have been constructed. That may be the case here, but it would be unusual for the developer to make three mistakes of this magnitude. A similar anomaly was observed with the contributor property at 17650 East 32nd Place in Upland Park east of Airport Boulevard. That property was completed in 2004 and the 2005 value was 55 percent below the cost of construction. The contributor property at 16265 East 33rd Drive in Gateway Park was also constructed in 2004. The 2005 value on this property showed that it was worth 41 percent less than it cost to build. STATE ASSESSMENT AUDIT One obvious question from the preceding information is what is the role of the state assessment audit? Why is it that the county was able to pass the audit for the years in question? In answer to these questions, the audit RFP has been reviewed and a representative of the current audit company has been interviewed. The warehouse subclass of properties was reviewed by the auditor for sales ratio compliance in combination with all other commercial properties. (The warehouse subclass represents only a small percentage of the commercial class total for Adams County.) The audit RFP requires a separate review of a subclass of property only when that subclass represents at lease 20 percent of the total value of a class. It was reported that the warehouse subclass in Adams County does not come close to reaching the 20 percent threshold. Based on this information, it would not be surprising if a relatively small number of warehouse properties was valued incorrectly and for a county to still pass the audit. The audit only tests values against qualified sales. Adams County had very few qualified sales of warehouse properties during the analysis period. The question was posed to the auditor on what was their role in seeing that sales are appropriately unqualified. The answer was that the auditor reviews the entire list of unqualified commercial sales. All obviously unqualified sales are dropped from this list. Of the remaining sales a small sample is selected for further review. In the case of Adams County, this number for the current year was approximately fifty sales of which only one was the sale of a warehouse property. The conclusion from this information is that the audit is generally a high level review of county practices and values, and was not designed to drill down to the individual property level.
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2011 UPDATED VALUE INFORMATION Review of the countys 2011 warehouse values in the four submarkets analyzed indicated a narrowing of the disparate treatment of contributor and non-contributor properties in the east I70 locations, but not in the Colfax and Chambers area. A table summarizing the 2011 average values for contributor and non-contributor properties and the percent difference between the two follows. 2011 VALUE COMPARISON YEAR CONTRIBUTOR NON-CONTRIBUTOR Majestic CommerCenter 2011 $32.97 $35.29 Upland II/Gateway (E/S Airport Blvd) 2011 $33.61 $37.27 Upland (W/S Airport Blvd) 2011 $35.58 $31.49 Colfax and Chambers 2011 $32.62 $46.34
DIFFERENCE -7% -10% +13% -30%
In Majestic CommerCenter the non-contributor values remained approximately the same while contributor values increased 13 percent. The result was that the contributor benefit declined from 17 percent to only 7 percent. In Upland II/Gateway east of Airport Boulevard the non-contributor values declined 13 percent while the contributor values increased 6 percent. This resulted in a reduction in the contributor benefit from 26 percent to 10 percent. In Upland west of Airport Boulevard the non-contributor values remained approximately the same while the contributor values declined 3 percent. In this area the non-contributor advantage narrowed from 17 percent to 13 percent. This narrowing trend did not continue in the Colfax and Chambers area. Both the noncontributor values and the contributor values remained approximately the same. The result was that the 30 percent contributor advantage continues. CONCLUSION 1) Warehouse properties owned by contributors had a lower level of value on average than similar warehouse properties owned by non-contributors. 2) The warehouse subclass has not been valued at the correct level of value. RECOMMENDATION It is recommended that the warehouse subclass have an order of reappraisal for 2011. It is recommended that the county work to develop an income approach model for the mass appraisal of warehouse properties. It is recommended that the county focus on identifying more qualified warehouse sales so that at a minimum, these sales will serve as a test of the reasonableness of the value indications by the cost approach and the income approach.
Adams County Taxpayer Complaint 2011 ADDENDA Commercial/ Industrial Properties
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ACCOUNT NOTES MAJESTIC COMMERCENTER
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August 16, 2011 - Report On Adams County Assessor Gil Reyes To The Colorado State Board of Equalization

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August 16, 2011 - Report On Adams County Assessor Gil Reyes To The Colorado State Board of Equalization

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Final Report and Recommendations

Colorado State Board of Equalization

Adams County Taxpayer Complaint 2011

Thiis page iinttenttiionalllly llefftt bllank.. Th s page n en ona y e b ank

Adams County Taxpayer Complaint 2011

Complainants: 2/ 7/2011 2/17/2011

Adams County Taxpayer Complaint 2011

Adams County Taxpayer Complaint 2011 PROCEDURES

Adams County Taxpayer Complaint 2011 PROCEDURES

Adams County Taxpayer Complaint 2011 FINDINGS

8777 E. 127th Ct., Brighton

Adams County Taxpayer Complaint 2011 ADDENDA Residential Properties

Average Difference between Contributors Values and Non-Contributors Values

Adams County Taxpayer Complaint 2011 ADDENDA Residential Properties

Gleneagle Estates to North across 128th Avenue

Adams County Taxpayer Complaint 2011 ADDENDA Residential Properties

YEAR 2005 2007 2009

DIFFERENCE -24% -13% -17%

YEAR 2005 2007 2009

YEAR 2005 2007 2009

DIFFERENCE +3% +11% +17%

YEAR 2005 2007 2009

DIFFERENCE -23% -28% -30%

CONTRIBUTOR PROPERTIES - 2005 NOD ADJUSTMENT

(43 of 45 accts [96%] protested)

DIFFERENCE -7% -10% +13% -30%

Adams County Taxpayer Complaint 2011 ADDENDA Commercial/ Industrial Properties

ACCOUNT NOTES MAJESTIC COMMERCENTER

Adams County Taxpayer Complaint 2011 ADDENDA Commercial/ Industrial Properties

Adams County Taxpayer Complaint 2011 ADDENDA Commercial/ Industrial Properties

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