Golf Course Income Approach Confirmed by Second Department

In a decision issued December 18, 2007, In re Mill River Club v. Board of Assessors (click link below), the Second Department has confirmed some of the methodology issues involving golf course valuation that have become familiar ever since the trial level decision in In re New Country Club of Garden City v. Board of Assessors was rendered in 1991. While Mill River is not a slam dunk for the petitioner and turns much on the trial court's refusal to add a tax-loaded cap rate (because it was assumed the property would be leased triple net....a dubious and case-by-case assumption), the Second Department confirms that, in the context of a golf club, the income capitalization method "is widely recognized as a valid method to determine the market value of income-producing property".

As an aside, on the tax-load issue, my thought is that it's somewhat irrelevant, or at least it should be: the idea is that we're supposed to value the course as if it's operating for a profit (in which case the tax exempt status of many municipal owned/leased courses should not be considered, in my view, though the AD seemed troubled on this point); if it's leased NNN then the lessee will pay the owner less rent because the lessee must pay the taxes, and if it's a gross lease the lessee will pay a higher rent but the owner must bear the tax burden. The bottom line effect to the owner in net revenue should be about the same because the operator needs to run things at a profit and not according to some mechanical formula. Seems like the AD got bogged down in a non-issue. To read the new decision, click on this link: http://taxcert.googlepages.com/MillRiverClubDecision.pdf

To read a few of the other recent trial level decisions from Long Island that affirm the valuation formula stated in New Country Club, click on these links:
http://taxcert.googlepages.com/CreekDecision.pdf
http://taxcert.googlepages.com/NorthShoreCCDecision.pdf
http://taxcert.googlepages.com/RockvilleCCDecision.pdf