NH BTLA – Cost Approach


NH BTLA has ruled in favor of the Cost Approach for limited-market and special-purpose properties. It is called “use value”. As excerpted here:

  • “Subject property is a unique, special purpose property, due to its size and design. It is appropriate for one use, or a very limited number of uses. The Highest and Best Use is the continuation of its existing use. Market value of this unique property is determined by the Theory of Substitution. The owner-occupant can be considered a potential buyer, in that he would not pay more to build a new complex than the replacement cost less depreciation plus land value. The tax courts have supported the use of the Cost Approach in the valuation of special purpose properties. Economic principals support the Cost Approach”
  • BTLA “…subject’s campus type, “special purpose, owner occupied, monumental development” worthy of a company anxious to achieve an international corporate image, which reflects institutional pride, prestige and success.”
  • “ …. Because such “big-box” properties rarely sell and are customarily owner-occupied,  there are usually  few, if any, market transactions,  either sales  or rentals, to analyze to produce  a reliable  indication  of value. Consequently the board concludes both the sales comparison and income approaches have little reliability in arriving at a credible market value opinion for the Property. The board has recently reaffirmed … that the cost approach is the most reliable indicator of market value for a limited market property.”
  • “The Property is a “limited market” property …. as well as a ‘special-purpose’ property. A limited market property is defined as ‘a property that has relatively few potential buyers at a particular time’ and a special-purpose property is defined as ‘a limited market property with a unique physical design, special construction materials, or a layout that restricts its utility to the use for which it was built.’ The cost approach is recognized to be a reliable method of valuing a limited market property.”
  • “Further, the supreme court has recognized, that given the limited marketability of a property (due to its nature as a limited market property or monopoly as the result of governmental regulation), the owner can be considered the hypothetical purchaser/user  and, thus, the cost approach has   merit  in estimating  its market value.”
  • “… a court could view the owner as a hypothetical buyer, whose idea of a fair purchase price would depend largely on “the price [it] would have to pay for building a new equivalent plant….the owner/occupant of a special purpose building whose size, configuration and higher-than-average cost per-square-foot could severely limit the number of prospective buyers interested in its acquisition for the purpose for which it was built. … a court could regard the owner as a hypothetical buyer. … This building, built new to the Taxpayer’s specifications according to their special needs, should be assessed at its present owner occupied use: … Property is to be valued at its “best and highest use.” … The subject property is neither vacant, nor property which has proven difficult to market because of its characteristics. The Property is actively being used for the purpose for which it was designed and built. The board finds the Property must be valued at its highest and best use … When property is appraised, all factors relevant to its value should be considered, including special architectural features and equipment (with only personalty on the premises excluded from the real estate’s real value).  The record does not support the Taxpayer’s claim that specialized features of the Taxpayer’s clinic have no transmissible value. The record indicates that the subject facility was designed and built to the Taxpayer’s specifications and is still considered state-of-the-art.”

Link to Appraisal Institute on limited-market and special-purpose properties