The Florida Fifth District Court of Appeal, in the case of Singh (Orange County Property Appraiser) v. Walt Disney Parks and Resorts, ultimately decided that the methodology utilized by the property appraiser to arrive at the market value for Disney’s Yacht and Beach Club is flawed. This methodology, referred to as the “Rushmore method,” can no longer be utilized in the state of Florida. This is a big win for hotels and resorts that have a significant amount of revenue that is generated by sources other than hotel rooms.
The Rushmore method has been a topic of debate in the appraisal world for years. It’s also widely used by county/jurisdictional property appraisers around the country. Essentially, it utilizes ancillary/additional income from on-site revenue sources, such as restaurants, bars, retail stores/outlets, parking lots/garages, spas, meeting/convention space, etc., and includes it in the total revenue figure, along with the room revenue. A primary argument against utilizing the Rushmore method is that including this type of ancillary/additional income in the total revenue number would be including a business enterprise value component, which would overstate the market value of the property. For example, when attempting to establish the market value of a property for appraisal purposes that is utilized as a restaurant, the income generated from selling the food and drinks is not considered as the income factor. Rather, the income factor is established by what the real property (land, buildings, fixtures, and all other improvements to land) would rent for, established by competing, similar type properties in the market. This rental rate is typically shown as a rate per square foot of building area, say $25.00 per square foot of building area. In most instances, this rental rate per square foot of building area indicates much less of a revenue factor than the business sales figures. As such, the reduced income factor based on the rental rate per square foot of building area would indicate a reduced market value. Basically, this was the methodology employed by Disney.
Some states have judicially rejected the Rushmore method, and now Florida can be included in that group. As indicated by the appellate court opinion filed June 19, 2020 on this case, “the dispute in this case began in 2015, when Appraiser’s tax assessment of the Property increased by 118% from the previous year’s assessment.”1 The trial court, in the case of Walt Disney Parks and Resorts US, a Florida Corporation, Plaintiff v. Rick Singh, as Property Appraiser, et al., Defendants, Case No.: 2016-CA-005297, concluded that the main reason for the increase in the property’s market value from the previous year was that the property appraiser included ancillary income from the sale of food, beverages, merchandise, and other goods and services on the property. The appellate court reversed the trial court’s assessment of the property value based on lack of evidence. However, it did uphold the trial court’s decision to reject the assessment/valuation methodology utilized by the Orange County Property Appraiser to arrive at the market value of the real estate for the Yacht and Beach Club property. The trial court found that the property appraiser improperly considered income from the business activities conducted on the property in establishing the market value. The appellate court opinion states that “the Rushmore method violates Florida law because it does not remove the nontaxable, intangible business value from an assessment.”2
What does this mean? For certain hotels and resorts in Florida, most of whom have suffered greatly because of the COVID-19 pandemic, it could mean some much-needed financial relief is on the way, via reduced property taxes. This would certainly be the case in Orange County, other parts of the state, and possibly other parts of the country where many of these full-service and resort-type hotels exist.
Ryan has well trained, local experts in each market of the country. Our client service is unmatched in this industry, and we’re ready to assist you. Should you have any questions or concerns about your property regarding this topic/issue, please reach out to any Ryan professional or jurisdictional specialist.
1 Rick Singh, as Property Appraiser, Appellant/Cross-Appellee, v. Walt Disney Parks and Resorts US, Inc., Scott Randolph, as Tax Collector, Reedy Creek Improvement District, A political Subdivision of The State of Florida, and Leon Biegalski, et al., Appellees/Cross-Appellants. Case No. 5D18-2927.
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