SOFT DRAW INVESTMENTS, LLC v. TOWN OF GREENLAND
SOFT DRAW INVESTMENTS, LLC v. TOWN OF STRATHAM
Docket/Court: 2010-CV-883; 2010-CV-884, New Hampshire Superior Court
Date Issued: 01/25/2012
Tax Type(s): Property
These two cases have been consolidated and represent Petitions for Tax Abatement for one piece of property lying partly in Greenland and partly in Stratham, for two tax years, 2009 and 2010. The property is comprised of an operating eighteen hole golf course with 150 acres located in the Town of Greenland and 75 acres and a clubhouse and other buildings located in the Town of Stratham. It was developed along with several house lots, some of which have been sold. Prior to trial counsel agreed on two aspects of this litigation. First, the Court was to exclude any evidence of the value of the house lots and concentrate solely on the value of the golf course. Secondly, the Court need not concern itself with a precise division in valuation between that portion of the property located in Greenland and that portion of the property located in Stratham or the respective Towns tax ratios. The sole request of the parties was to have the Court put a value on the golf course itself for the tax years 2009 and 2010.
By way of background, property was purchased and developed as a golf course by a group of well-to-do businessmen in or about 2002. The cost was somewhere between ten and eighteen millions dollars. The intent was to create an upscale golf course not on a par (pun intended) with the existing golf courses in New Hampshire and northern New England. The evidence suggests that the developers spared no expense in the design and construction of this course. The entity created to develop and own the property was Golf Course of New England. The course opened in 2003 however that entity filed bankruptcy in 2004. During the course of the bankruptcy proceeding, the property was conveyed to the current plaintiff, which had financed the original construction. As the plaintiff sets forth in its memorandum, Soft Draw Investments, LLC became the owner of the property by default rather than by desire.
The within litigation is not the first time that the plaintiff and defendants have disputed the fair market value of the golf course for tax purposes. In fact the plaintiff filed a Petition for Abatement of Real Estate Taxes against both Greenland and Stratham for the tax years 2005, 2006 and 2007. The forum for these appeals was the New Hampshire Board of Tax and Land Appeals. Prior to a hearing being conducted by that entity, the parties agreed to set the golf course value for purposes of the assessment of real estate taxes at seven million dollars. Believing that amount to be unreasonably high and disproportionate to the other real estate assessments in the respective towns, the plaintiff elected to file tax abatements for the years 2009 and 2010 in this Superior Court.
The appeals were tried to this Court on December 21, 2011. The parties had requested a view, and for fear of severe winter weather, the view was taken prior to trial on November 4, 2011. The Court accompanied counsel and the General Manager of the golf course on a tour in and through the property on a golf cart. While the view was helpful to the Court in understanding the particular characteristics of this course, it should be noted that this Court has no experience in the playing of golf. This Court's view of that pastime parallels that of Mark Twain who stated many years ago that “golf is simply an activity that interrupts a pleasant walk”. Nonetheless, the particulars of each hole and the surrounding greenery and numerous golf cart paths were impressive. From the limited knowledge that the Court has of other golf courses in the area, this one appears to be far above the standard.
The golf course contains a beautiful clubhouse. This court is familiar with other golf course clubhouses since most contain restaurants and bars. The setting of the clubhouse is exquisite and the construction used, mainly the wood interior, is more than elegant. Without a doubt the developers of this property spared no expense in its creation.
The parties must keep in mind that the issue in these Tax Abatement Appeals is not the cost of construction or the intent of the owners or even the elegance of the final product. The issue is the fair market value of the property for the tax years in question. It is common knowledge that properties either increase or decrease in value each year to some extent. It is unusual for property to appreciate or depreciate greatly in the course of a year or two, although the more unusual the property, the more likely of that event occurring.
The two real estate appraisers who testified for the respective parties in this case, both well qualified, reiterated the standard for appraisal that the Court has been intimately familiar with for the past twenty-five years in deciding these cases. The three recognized approaches to determine fair market value are cost, comparative sales, and income. The cost approach is a good one to use for recent construction, however in this Court's experience its accuracy is dependent upon the nature of the project itself. The evidence supports the opinion of the plaintiff's expert as contained in his report that “gold courses are not recognizing sales prices anywhere near the cost to acquire land and construct one.” In this case it appeared that the cost was no object as far as acquisition and construction were concerned. The project appears to have been limited only to what the owners could afford. While the plaintiff's expert believed the cost approach was inappropriate to use in this case, the defendant's expert relied on it to reach his conclusion that the value of the golf for the years in question was $7,723,000.00.
The economy has even more of an influence on the fair market value of certain property as opposed to other property depending upon use. In a down economy expensive pleasure activities are often times the first activities to be curtailed or eliminated. If the decade after this golf course was constructed constituted a period of economic boom in this country, the course itself might have doubled its value by the year 2009. However given the poor economy for the last five years, it is understandable that at the present time the properties fair market value is far less that its original cost.
With respect to the other two recognized approaches to the determination of fair market value, both appraisers addressed the comparable sales approach. Neither found this approach to be a valid one to use in this case. The Court's examination of the comparable sales which both experts utilized in their analysis suggests that the vast differences between each golf course made any reasonable adjustment to bear upon the value of the golf course in question impossible. It is notable that a number of these other “sales” were not arms length transactions but rather were the product of bankruptcy or foreclosure. That suggests as argued by the plaintiff, that the golf course industry for the years 2009 and 2010, and even at present, is in a continuing downward spiral.
With respect to the last recognized approach, the income approach, the defendant's expert discounted it because “no financial data was available from the property owner”. Conversely, the plaintiff's expert relied on it exclusively to reach his conclusion that the golf course had the fair market value of $4,400,000.00 for each of the years in question.
In a case like this where arguably none of the traditional market value approaches provides a reasonable formula for worth for the purpose of taxation, sometimes what a willing buyer would pay for the property under consideration is a good indicator of value. That is the position taken by the plaintiff in this case. One of its witnesses was Richard Anagnost. This gentleman has developed numerous commercial and residential projects over the past ten years, albeit none of them golf courses. His testimony was that he and several of his business partners made a concerted effort to purchase the golf course as an investment in 2007. Not only did he bring his expertise to that endeavor, he also expended monies to determine the pros and cons of such a purchase. After negotiation with the owner, he agreed to pay five-million dollars for the golf course. That offer was rejected and Mr. Anagnost refused to increase it, thus that sale potential dissipated.
The one thing that both experts agreed upon in this case was that the highest and best use of this property was in fact as an operating golf course. The uneven terrain, extensive wetlands, and other peculiar facets of the land make it virtually impossible to be used in any other capacity. For example, residential housing would seem to be cost prohibitive in terms of what the site work would encompass. Retail use would also appear to be unlikely, given the distance of the property from any major highway. The ngress and egress would have to be substantially improved, for example, if the owner of the property sought to construct a shopping mall on it. This it is what it is and what it will be for the future, a golf course.
In all likelihood its value will continue to fluctuate based upon the general economy and also based upon the expertise of the owner in the operation of the golf course itself. At trial the defendants took issue with the specifics of the operation in terms of the restricted membership, exorbitant initiation fee, and high greens fee. While it can be argued that a reduction of fees and expansion of membership would reduce the reported two-million dollar annual operating loss of the golf course, there was no evidence to suggest that absent a spike in the economy, the golf course could ever be a profitable enterprise. Yet profitability is not the most important thing to consider in assessing fair market value. As the plaintiff points out, the property contains no swimming pools, tennis facilities or complimentary amenities that are family oriented and typically found in other private golf courses and country clubs.
In its analysis of the golf course for prior tax years, the Board of Tax and Land Appeals concluded that golf courses such as the one at issue in this litigation are sometimes referred to in the golfing world as “big boy clubs” and are usually developed in a manner more for personal or “ego” reasons rather than sound business practices or as a for profit investment. Such courses are special purpose properties for the exclusive enjoyment of their members. This Court cannot agree more with that conclusion. Unfortunately for the defendants, because of the down economy the membership of such golf courses is limited and the reduction in membership in this golf course in particular is an example of that phenomenon.
So what is the bottom line? The Court notes that the Board of Tax and Land Appeals reached the conclusion that in fact both experts reached in this case, and that is that the highest and best use of the property was as an operating golf course. However it was deemed to be a “special purpose” property. A special purpose project is defined as a “limited market property with a unique physical design, special construction materials or a layout that restricts its utility to use for which it was built”. The Court agrees. While it is difficult to put a dollar value on “special purpose property”, in fact that must be done in this case. The privilege of limited membership, unrestricted greens times, and an elaborate clubhouse add to the value of this property. Members of the golf club are not concerned about making a profit and recognize that they will be paying much more than their actual use of the property can be valued at.
As previously stated, the Court finds that the use of none of the three recognized approaches is a good indicator of value in this case, given the unique setting of the property and also given its restricted use. However as between the two appraisers, the Court concludes that the plaintiff's experts opinion of fair market value based upon the income approach is a much more reliable indicator of value than is the defendant's experts opinion of value based upon the cost approach for the tax years 2009 and 2010. The Court therefore elects to use the plaintiff's expert's opinion of value as a starting point. It however determines that the golf course has a “special purpose identity” that translates into increased value. The Court determines that that increase is one million dollars. Therefore, the Court finds and rules that for the tax years 2009 and 2010, the fair market value of the golf course solely is 5.4 million dollars.
Both parties have filed a series of Requests for Findings of Fact and Rulings of Law. With respect to the plaintiff's Requests, the Court grants all but Request #13. Which is denied. With respect to the defendant's Requests, the Court grants all but Requests 10, 18, 19, 20, 21, and 23 which are denied
Kenneth R. McHugh