Nationwide Mutual Insurance Company v. Polk County Board of Review

IN THE COURT OF APPEALS OF IOWA

No. 20-1290
Filed February 16, 2022

NATIONWIDE MUTUAL INSURANCE COMPANY,
Plaintiff-Appellant,

vs.

POLK COUNTY BOARD OF REVIEW,
Defendant-Appellee.
________________________________________________________________

Appeal from the Iowa District Court for Polk County, Paul D. Scott, Judge.

Plaintiff appeals the assessment for tax purposes of its property by the Polk

County Board of Review. REVERSED.

Sean Moore of Brown, Winick, Graves, Gross and Baskerville, P.L.C., Des

Moines, for appellant.

Mark Taylor and Jason Wittgraf, Assistant Polk County Attorneys, Des

Moines, for appellee.

Heard by Schumacher, P.J., Ahlers, J., and Mullins, S.J.*

*Senior judge assigned by order pursuant to Iowa Code section 602.9206

(2022).
2

SCHUMACHER, Presiding Judge.

In this appeal, we are called upon to determine whether the valuation of two

structures located in downtown Des Moines comports with Iowa Code section

441.21 (2017) and the supreme court’s decision in Wellmark, Inc. v. Polk County

Board of Review, 875 N.W.2d 667 (Iowa 2016).

Nationwide Mutual Insurance Co. (Nationwide) appeals the assessment for

tax purposes of its property by the Polk County Board of Review (Board). The

district court affirmed the Board’s valuation. Nationwide presented evidence from

two disinterested witnesses to support its claim that the actual value of the property

was less than the assessed value, and the burden then shifted to the Board to

uphold the assessment. The Board’s experts did not rely on the sales approach

to value the property. The district court did not address whether the fair market

value of the property could be readily established by looking at comparable sales.

Nationwide entered into a minimum assessment agreement that established the

minimum actual value of the property and we determine this amount is the tax

assessment value for the property. We reverse the decision of the district court.

I. Background Facts & Proceedings

Nationwide owns buildings at 1100 Locust Street and 1200 Locust Street in

Des Moines. These buildings are used as the company’s headquarters. In 2006,

Nationwide entered into an Urban Renewal Development Agreement with the Des

Moines City Council, which provided Nationwide would receive $28 million in

economic incentives to increase the size of the buildings. The agreement called

for a minimum assessed value of $78.5 million for 1100 Locust Street and $36

million for 1200 Locust Street for a period of ten years.
3

The agreement, signed by Nationwide on August 27, 2007, stated:

Nothing herein shall be deemed to waive Nationwide’s rights
under Iowa Code section 403.6(19) [2007], as amended, to contest
that portion of any actual value assignment made by the Assessor in
excess of the Minimum Actual Values established herein. In no
event, however, shall Nationwide seek to reduce the actual value
assigned below the Minimum Actual Values established herein
during the term of the Agreement.

The building at 1100 Locust Street has seven stories with 798,696 square

feet. It is a single-tenant, built-to-suit, owner-occupied building. Part of the building

was built in 2002 and the remainder in 2006. It was remodeled between 2011 and

2016. The building contains office areas, conference rooms, a cafeteria, and a

fitness center.

The building at 1200 Locust Street is a part five-story, part four-story

building, with 371,920 square feet. This building is also single tenant, built to suit,

and owner occupied. It was built in 2007 and remodeled between 2013 and 2015.

The building contains office areas, conference rooms, and a dining area.

The minimum assessment agreement was in effect for the 2017 and 2018

tax years.1 For those years, the Polk County Assessor increased the valuation of

1100 Locust Street from $80,230,000 to $87,050,000 and the valuation of 1200

Locust Street from $41,390,000 to $44,910,000. Nationwide contested the

valuations. The Board determined the property was assessed at its fair market

value and did not change the valuations of $87,050,000 and $44,910,000.

1 During oral arguments before our court, Nationwide noted it also has appeals
pending for the 2019 and 2021 assessments not subject to the minimum
assessment agreement. Neither the 2019 nor 2021 assessment is included in the
instant appeal.
4

On July 12, 2017, Nationwide appealed the Board’s decision to the district

court. It hired Thomas Scaletty, an appraiser for Mainland Valuation Services, in

Lexena, Kansas. Scaletty considered three comparable sales in Des Moines and

three outside of Des Moines but still in the Midwest. He made adjustments based

on perceived differences in the properties. Using the comparable sales method,

Scaletty found the value of 1100 Locust Street was $39,390,000 and 1200 Locust

Street was $22,640,000. He testified, “I relied significantly on that sales

comparison approach, because it specifically focuses on single-tenant buildings

that were sold for continued single office use.”

Based on the cost approach, Scaletty found the value of 1100 Locust Street,

was $39,740,000 and 1200 Locust Street was $23,440,000; however, he gave no

weight to the cost approach. Scaletty determined the value of 1100 Locust Street

was $39,550,000 using the income approach, and the value of 1200 Locust Street

was $24,240,000 using this method. He stated he gave less weight to the income

approach than the comparable sales approach.

Nationwide also hired Don Vaske, an appraiser with Frandson & Associates

in Des Moines. To determine fair market value, Vaske considered four comparable

sales. He looked at two sales in the Des Moines area and two sales outside of

Iowa. He adjusted the sales price for size and location, as well as market

conditions. All the sales involved transactions of a fee simple interest. Using the

comparable sales approach, Vaske valued 1100 Locust Street at $48,237,000 and

1200 Locust Street at $26,034,000.

Vaske used the cost approach to value 1100 Locust Street at $54,385,000

and 1200 Locust Street at $26,650,000. He used the income approach to value
5

1100 Locust Street at $47,117,000 and 1200 Locust Street at $25,134,000. Vaske

testified:

In the case of the subject, there’s some functional and
external obsolescence. All these factors weaken the reliability of the
cost approach. The sales comparison approach relies on examples
of comparable sales, and market participants, price points, and
reaction to the property; in this case, a larger corporate home office.
There are sales of larger corporate home offices. I analyzed
two in Des Moines. You go to Midwestern communities, Kansas City,
Minneapolis. There are examples of sales. The adjustments
required to the sales as reasonable, I think the sales comparison
approach deserves the most weight and is the most reliable in this
case.
The income approach is most accurate when properties are
typically bought for their income-producing potential. This is an
owner-occupied building; it was designed for a single occupant, that
weakens the reliability of the income approach. I’d give the income
approach less weight.

The Board also presented evidence from two appraisers. Mark Kenney was

an appraiser with American Valuation Group, Inc., located in Lansdale,

Pennsylvania. Kenney looked at six comparable sales in markets larger than Des

Moines. He stated he gave the sales approach “the least amount of weight,”

because of the difference in the market size. He valued 1100 Locust Street at

$107,000,000 using the sales approach and 1200 Locust Street at $63,000,000.

Kenney testified:

I considered that they’re national in the first place. I mean,
ideal would have been another corporate headquarters right in
downtown Des Moines.
So once you start looking at all the different factors and some
of them are sale leasebacks, and—I mean, I thought they were
comparable compared to my highest and best use because I want to
use continued occupancy, comparable to what we have.
And yet with all the national exposure, national sales, I just felt
that this approach wasn’t as good, and I gave the most weight to the
cost approach.
6

Kenney valued 1100 Locust Street at $80,000,000 and 1200 Locust Street at

$55,000,000 using the income approach. Using the cost approach, he determined

the value of 1100 Locust Street was $99,000,000 and the value of 1200 Locust

Street was $41,000,000.

Russ Manternach is an appraiser with Commercial Appraisers of Iowa, Inc.

Manternach used four comparable sales in Iowa—two in Des Moines, one in Cedar

Rapids, and one in Johnston. Only one of the comparable sales was a fee simple

sale. He looked at other sales, but found they did not involve buildings of a similar

size and were not sufficiently comparable. Manternach looked at multi-tenant

buildings as comparable sales, making adjustments to the sales price. For one

comparable sale, he also made an adjustment because “all the leases were ending

and there was more vacancy in the building.” Manternach stated he looked at each

sale and considered if he would give them weight, and if so, how much weight. He

found that using the sales approach the value of 1100 Locust Street was

$81,300,000 and the value of 1200 Locust Street was $42,800,000.

Using the income approach, Manternach valued 1100 Locust Street at

$81,300,000 and 1200 Locust Street at $42,900,000. Using the cost approach, he

valued 1100 Locust Street at $89,300,000 and 1200 Locust Street at $44,000,000.

Manternach stated he gave equal weight to the sales and income approaches,

finding the results were “fairly close together.” He gave less weight to the cost

approach “because of the amount of accrued depreciation.”

The district court determined Nationwide produced two disinterested

witnesses who indicated the market value of the property was less than the market

value determined by the Board, and under Iowa Code section 441.21(3)(b) (2017),
7

the burden shifted to the Board to uphold the assessed value. The court did not

make a finding that the fair market value of the property could not be readily

established using the sales comparison approach but considered alternative

means of determining the value of the property. The court found:

Reviewing the testimony of each appraiser and their reports,
the Court finds the reports of Kenney and Manternach to be more
reliable than the reports of Vaske and Scaletty. In its analysis and
review of the record and testimony before it, the Court gives more
weight and consideration to the reports and testimony of Kenney and
Manternach in its attempt to determine the value of the Property.

The court noted the replacement costs for insurance purposes of the properties

were above the assessed values set by the Board. The court relied upon the cost

approach and found the Board’s appraisers provided competent evidence of the

values for the two buildings. The court affirmed the valuation of 1100 Locust Street

at $87,050,000 and 1200 Locust Street at $44,910,000. Nationwide now appeals.

II. Standard of Review

The Iowa Supreme Court has stated:

Our review of a tax protest is de novo. Boekeloo v. Bd. of
Rev., 529 N.W.2d 275, 276 (Iowa 1995); see also Dolphin
Residential Coop., Inc. v. Iowa City Bd. of Rev., 863 N.W.2d 644,
647 (Iowa 2015) (“[A]ppeals from decisions of the local board of
review are triable in equity . . . , and our review is de novo . . . .”).
“[W]e give weight to the [district] court’s findings of fact, [but] we are
not bound by them.” Iowa R. App. P. 6.904(3)(g); Boekeloo, 529
N.W.2d at 276. We are especially deferential to the court’s
assessment of the credibility of witnesses. Boekeloo, 529 N.W.2d at
276.

Wellmark, 875 N.W.2d at 672 (alterations in original).

III. Discussion

A tax payer may protest the assessed value of property to the county board

of review. Iowa Code § 441.37(1); Soifer v. Floyd Cnty. Bd. of Rev., 759 N.W.2d
8

775, 779 (Iowa 2009). Nationwide protested on the ground “the property is

assessed for more than the value authorized by law.” See Iowa Code

§ 441.37(1)(b).

Section 441.21(3)(b)(1) states:

For assessment years beginning before January 1, 2018, the
burden of proof shall be upon any complainant attacking such
valuation as excessive, inadequate, inequitable, or capricious.
However, in protest or appeal proceedings when the complainant
offers competent evidence by at least two disinterested witnesses
that the market value of the property is less than the market value
determined by the assessor, the burden of proof thereafter shall be
upon the officials or persons seeking to uphold such valuation to be
assessed.

“The statute not only requires two disinterested witnesses, it also specifically

requires the evidence offered by a disinterested witness to be competent before

the burden of proof shifts to the board.” Compiano v. Bd. of Rev. of Polk Cnty.,

771 N.W.2d 392, 398 (Iowa 2009). “Evidence is competent under the statute when

it complies ‘with the statutory scheme for property valuation for tax assessment

purposes.’” Id. (quoting Boekeloo, 529 N.W.2d at 279).

Nationwide contends that it provided competent evidence from two

disinterested witnesses, Scaletty and Vaske, to show the market value of the

properties was less than the assessed value. The district court agreed with

Nationwide, finding it presented the testimony of two disinterested witnesses to

indicate the values of 1100 Locust and 1200 Locust were less than the current

assessed values. The Board does not dispute this finding. We determine

Nationwide met its burden to show the market value of the property was less than

the Board’s assessment. Under section 442.21(3)(b), the burden shifts to the

Board to uphold the assessed value. See Boekeloo, 529 N.W.2d at 279.
9

The valuation of property for purposes of determining the appropriate

amount of property tax is governed by section 441.21. “All property subject to

taxation shall be valued at its actual value . . . .” Iowa Code § 441.21(1)(a). In

general, “The actual value of all property subject to assessment and taxation shall

be the fair and reasonable market value of such property . . . .” Id.

§ 441.21(1)(b)(1); Soifer, 759 N.W.2d at 778 (noting the actual value of property is

its fair and reasonable market value).

“Market value” is defined as the fair and reasonable exchange in the
year in which the property is listed and valued between a willing
buyer and a willing seller, neither being under any compulsion to buy
or sell and each being familiar with all the facts relating to the
particular property.

Iowa Code § 441.21(1)(b)(1). Finding the fair market value of property through

comparable sales is the “preferred method” of valuation.2 Wellmark, 875 N.W.2d

at 679; Compiano, 771 N.W.2d at 398 (“The legislative scheme for the valuation

of real estate for purposes of assessing taxes begins with the market-value

approach, based on ‘comparable sales of other properties.’” (citation omitted)).

In “circumstances where the market value of taxable property [can] not be

readily established,” an assessor may use “an alternative approach to establishing

actual value.” Wellmark, 875 N.W.2d at 679. Section 441.21(2) provides:

In the event market value of the property being assessed
cannot be readily established in the foregoing manner, then the
assessor may determine the value of the property using the other
uniform and recognized appraisal methods including its productive

2 The consideration of sale prices is limited to “normal transactions reflecting
market value.” Iowa Code § 441.21(1)(b)(1). “[S]ale prices of property in abnormal
transactions not reflecting market value shall not be taken into account or shall be
adjusted to eliminate the effect of factors which distort market value.” Id. Abnormal
transactions may include sales to immediate family members, foreclosure sales,
or contract sales. Id.
10

and earning capacity, if any, industrial conditions, its cost, physical
and functional depreciation and obsolescence and replacement cost,
and all other factors which would assist in determining the fair and
reasonable market value of the property but the actual value shall
not be determined by use of only one such factor.

The Iowa Supreme Court has stated:

“Other factors” may be considered if, and only if, market value cannot
be readily established through the preferred market analysis. Once
that threshold has been crossed, the assessor may consider a broad
range of factors, but cannot rely solely on one such factor in
determining “the fair and reasonable market value” of the property,
or “actual value.”

Id. (citing Iowa Code § 441.21(1)) (emphasis in original). The statute “mandate[s]

that the assessor must first attempt to determine fair market value by using

comparable sales.” Carlon Co. v. Bd. of Rev. of City of Clinton, 572 N.W.2d 146,

149 (Iowa 1997). “The[ ] alternate means of valuation may be used only when

market value cannot be readily established using a comparable sales approach.”

Boekeloo, 529 N.W.2d at 277.

Nationwide claims the Board failed to meet its burden because the Board’s

experts did not adequately follow the statutory scheme for property valuation. See

Compiano, 771 N.W.2d at 398. Nationwide asserts the Board did not present

competent evidence to uphold the valuation of 1100 Locust Street at $87,050,000

and 1200 Locust Street at $44,910,000 because the Board’s experts, Kenney and

Manternach, did not rely on comparable sales to determine the value of the

properties. Nationwide states the fair market value of 1100 Locust and 1200

Locust can be determined through an analysis of the sales of comparable single-

occupant buildings in Des Moines and similar markets. Nationwide asserts that

the Board’s experts should not have considered other factors because market
11

value can be readily established through the comparable sales approach.

Nationwide also argues the district court erred in the application of burdens

“[T]he sales prices approach is initially to be used and . . . the other factors

approach may be employed ‘if and only if’ [the] exchange value cannot thus be

readily established.” Bartlett & Co. Grain v. Bd. of Rev. of City of Sioux City, 253

N.W.2d 86, 88 (Iowa 1977) (quoting Juhl v. Greene Cnty. Bd. of Rev., 188 N.W.2d

351, 353 (Iowa 1971)). The Iowa Court of Appeals recently stated, “The rule

requires a fact-finder to first determine that the comparable-sales approach is

unworkable before considering other factors.” Lowe’s Home Centers, LLC v. Iowa

Prop. Assessment Appeal Bd., No. 20-0764, 2021 WL 610105, at *3 (Iowa Ct. App.

Feb. 17, 2021).

“[A] party relying on the other factors approach has the burden of

persuading the fact finder that exchange value cannot be readily established by

the sales prices approach.” Bartlett & Co. Grain, 253 N.W.2d at 88; see also

Carlon Co., 572 N.W.2d at 150 (“[T]he party relying on the ‘other factors’ approach

has the burden of persuading the fact finder that the fair market value of the

property cannot be readily established by the comparable sales approach.”).

While the district court noted, “the statute provides for alternative means of

determining market value which should not be used unless the market value

cannot be readily established using the Sales Comparison Approach,” the court

did not address whether the fair market value of the property could be readily

established by looking at comparable sales. The court stated only that it found the

appraisals by Kenney and Manternach were more reliable than the appraisals by
12

Scaletty and Vaske. The court did not analyze comparable sales and considered

the value of the buildings using the cost approach.

On our de novo review, we find the Board’s experts, Kenney and

Manternach, did not present competent evidence of the value of 1100 Locust

Street and 1200 Locust Street. Neither expert relied upon the sales approach to

value the property. Kenney gave the sales approach “the least amount of weight.”

Manternach gave equal weight to the sales and income approaches. The Board’s

experts did not follow the statutory scheme for the valuation of property. See

Wellmark, 875 N.W.2d at 679 (noting that the cost and income approaches should

be used only if “market value cannot be readily established through the preferred

market analysis”). And the expert testimony presented by the Board did not carry

its burden to show the value could not be established by the sales price approach.

Barlett & Co. Grain, 253 N.W.2d at 150. We conclude the Board did not meet its

burden under section 442.21(3)(b) to uphold the assessed value. See Boekeloo,

529 N.W.2d at 279.

If the evidence is adequate to determine the value of the property, the court

makes an “independent determination of the value” of the property. Compiano,

771 N.W.2d at 397; see Kaplan v. Bd. of Rev. of City of Sioux City, No. 03-0604,

2003 WL 23220013, at *3 (Iowa Ct. App. Nov. 26, 2003) (finding that when the

Board failed to meet its burden to uphold an assessment, the court valued the

property). We may determine the actual value of the property. See R.S. Fox,

L.L.L.P. v. Bd. of Rev. of Des Moines Cnty., 656 N.W.2d 809, 816 (Iowa Ct. App.

2002) (modifying the assessed value of property); Hormel Foods Corp. v. Clark

Cnty. Bd. of Rev., No. 00-148, 2001 WL 355593, at *8 (Iowa Ct. App. Apr. 11,
13

2001) (establishing the taxable value of property when the Board failed to justify

its assessed valuations).

“[T]he assessed value or ‘actual value’ may not exceed the fair and

reasonable market value.” Splash Enters., L.C. v. Polk Cnty. Bd. of Rev., No. 10-

1887, 2011 WL 3925415, at *6 (Iowa Ct. App. Sept. 8, 2011) (citing Iowa Code

§ 441.21(1)(g)). Nationwide and the Board entered into a tax assessment

agreement that provided there was a minimum valuation of $78.5 million for 1100

Locust Street and $36 million for 1200 Locust Street. The agreement stated, “In

no event, however, shall Nationwide seek to reduce the actual value assigned

below the Minimum Actual Values established herein during the term of this

Agreement.” The minimum tax assessment agreement was in effect for the period

involved in Nationwide’s protest here.

During oral arguments before this court, both sides requested we set the

assessed value of the property, rather than remand.3 We accept this invitation

given the evidence contained in the record before us. We reverse the decision of

the district court. We conclude the assessed value of 1100 Locust Street is $78.5

million and the value of 1200 Locust Street $36 million, as Nationwide agreed this

is the minimum actual value of the properties. See Iowa Code § 441.21(1)(a) (“All

property subject to taxation shall be valued at its actual value . . . .” (emphasis

added)).

REVERSED.

3 Nationwide urges this court to set the assessed value below the minimum
assessment agreement. We decline to do so given the language of Iowa Code
section 441.21 and the minimum assessment agreement.