The highest and best use of a vacant commercial property in Michigan was to demolish the improvements and hold it for future development, a state panel ruled, reducing the property’s valuation by almost $500,000 for each of two years.
Lormax $500K Value : Tribunal’s Ruling
In a judgment entered Tuesday, the Michigan Tax Tribunal reduced the valuation of the Acme Township property, where a former Kmart building has stood vacant since 2017. The property’s value was cut to $917,500 for tax years 2020 and 2021, down from approximately $1.4 million each year. The tribunal concurred with the property owner, Lormax Stern Acme LLC, that the highest and best use of the property was to hold it for redevelopment potential after demolishing the existing structure.
Disagreement on Valuation
The tribunal dismissed the township’s claims that the highest and best use of the property was speculative, with potential for reuse or interim use of the existing structure. Acme Township, utilizing a sales comparison approach, had argued for valuations of $1.9 million for both years. In contrast, Lormax Stern Acme LLC, also using a sales comparison approach, argued for valuations of $775,000 for both years.
Methodology and Adjustments
The tribunal adopted a sales comparison approach, examining comparable prices per square foot and adjusting for demolition costs as argued by Lormax. However, the tribunal rejected some additional adjustments proposed by Lormax. This decision ultimately led to the significant reduction in property valuation.
Lormax $500K Value : Case Information
The case is Lormax Stern Acme LLC v. Acme Township, docket number 20-002232, before the Michigan Tax Tribunal. The ruling marks a notable shift in how vacant commercial properties may be assessed, particularly when demolition and future development are considered the highest and best use.
Implications
This decision highlights the importance of accurately assessing the potential use of commercial properties, particularly those that have remained vacant for extended periods. For Lormax, the $500K reduction in valuation for each year signifies a substantial financial relief. This ruling could also set a precedent for similar cases, where property owners argue for lower valuations based on future redevelopment potential.
