When Mammoth Mountain Ski Area changed ownership in 2005, the Mono County Assessor’s Office began the process of reappraising the ski area to determine its new tax status. Sounds simple enough, but appraising a property as intricate as MMSA is anything but simple, and it isn’t easy, either. Ask current Mono County Assessor, Jody Henning, who along with her counterpart at the Mountain, CFO Mark Clausen, recently settled a lengthy appeal over that reappraisal.
Back in 2005, Starwood Capital Group acquired MMSA from Dave McCoy and Intrawest in what was a $365 million deal. At that point in time, according to Henning, the original assessed value was $105 million, a substantial difference and one that would have a big impact on its tax valuation. As soon as the deal was completed, the clock started on the four-year time limit the Assessor’s Office had to complete the reappraisal and get new figures on the tax rolls, with enrollment due no later than June 2009.
An appraiser had been brought in to do the job, and worked under assessors Glenn Barnes and later Jim Lovett. Restarts and other problems caused considerable time lapses, leaving much of the work undone when Assessor Henning took over the appraisal in June 2008. “The reason the reappraisal took a long time was largely due to the condition of the assessment when I took it over, and that, with a big dollar item such as a whole ski area, an appeal was going to be a given,” she said.
Putting the entire tax period from 2006-2009 together, she came up with a figure of between $272 million and $277 million, and the reassessment was finally enrolled in mid-2009.
Not surprisingly, MMSA appealed, arguing that Starwood Capital overpaid and the assessment was too high, an argument Henning said is reasonable, given that when the sale took place, the real estate market was at or near its peak, prior to the decline that began in 2006.
“It’s like looking back at how things were in 2006, only you’re being influenced by the way things are in 2011,” she related. “Imagine you’re buying a car that was made in 2006, is brand new and has zero miles on it, but you’re buying it in 2011 and the car market has collapsed. The seller wants to get close to what they paid for it, but the buyer’s looking for a deal and the market for Hummers is in the dumpster.”
Both Mono County and MMSA hired independent appraisers. The Appraiser Group’s Chris Hansen worked with Henning and her staff on what would become a 350-page appraisal. Here’s the not easy part: MMSA consists of 66 separate parcels, including three full ski areas (Mammoth, June and Tamarack), restaurants, apartments, a golf course and numerous other properties. Hansen handled 13 of the biggest items, including the major ski areas, and the County finished the rest.
Henning said MMSA was examined using market values in other comparable sales and lease back transactions, and property of ski areas in MMSA’s peer (or “tier”) group. In short, MMSA wasn’t contrasted against Whistler on the high end and Big Bear on the low end, but rather those similar in both size and revenue, among other factors.
Meanwhile, corrections were made to the ’06-’09 tax rolls, based on the new base-year valuation, but MMSA also said the assessment should also reflect removal of the fair market value of certain intangible operational aspects, or “business enterprise value (BEV).” As is the case with many businesses, part of an acquisition involves buying the product or service, and also the name and/or brand recognition, upper management team, and any community or other type of “goodwill.”
BEV, MMSA maintained, must be worth something in a transaction such as this, a valid point, Henning agreed.
Henning said she and Clausen opted to forego using attorneys, and address the issues personally. They discussed the sale, operation and details of the purchase itself, and as the agreed upon BEV value went up (from 20% to 27%), the assessed value was reduced proportionately, settling at about a $39 million overall reduction. After final changes and corrections, the new value ended up at about $227 million. “We didn’t just say, ‘Okay, here’s your high number, here’s our low, let’s just split it and walk away,’” she explained. “It was a very methodical, careful, deliberative process on both sides.”
Even after the downward adjustment, Henning noted that the new base-year valuation still represents an increase of more than 100% over the previous amount.
The final, agreed stipulations were presented to the Assessment Appeals Board in late October of this year, and were unanimously approved after a full review of the amended assessed value and supporting documentation.
MMSA, she insisted, was paying its tax bill all along; the only issue was how much.
“That was a failure of previous assessors to issue a revised bill,” she said. “MMSA is current being assessed all the way back to the new assessed value for the ’06-’09 years.” Given the amount of taxes needing to be made up during the various periods, Henning acknowledged the ski area is on an installment plan, which she clarified is every taxpayer’s right, not something exclusive to MMSA or other big shots.
Henning said she expects to have all 70 of the tax roll corrections done by year’s end, and the Auditor and Tax Collector’s offices are processing them in turn. County Finance Director Brian Muir is inputting all the numbers into his budgeting as they become available, and hopes to have his estimates of money available to school, fire and other districts sometime between the end of January and end of February.