A23-1420

1
STATE OF MINNESOTA

IN SUPREME COURT

A23-1419
A23-1420

Tax Court Procaccini, J.
Took no part, Hennesy, J.
Tamarack Village Shopping Center, LP,

Relator,

vs. Filed: July 31, 2024
Office of Appellate Courts
County of Washington,

Respondent.

________________________

Larry D. Martin, L. D. Martin Law Office, Chaska, Minnesota, for relator.

Kevin Magnuson, Washington County Attorney, James Zuleger, Assistant Washington
County Attorney, Stillwater, Minnesota, for respondent.

________________________

S Y L L A B U S
1. When calculating potential gross income under the income capitalization
approach to valuation, the tax court did not err by declining to use an effective rent
calculation to account for tenant improvement allowances because the taxpayer’s tenant
improvement allowances were typical of the market.
2
2. The tax court did not clearly err by declining to deduct lease-up costs from a
property’s indicated value to account for its above-market vacancy rate on the assessment
date because the taxpayer failed to show that such a deduction was required.
Affirmed.
O P I N I O N
PROCACCINI, Justice.
This appeal from the tax court concerns the valuation of two commercial properties
in a Woodbury shopping center. We consider two questions about the tax court’s income
capitalization approach to valuing the properties: (1) whether the tax court erred when it
declined to use an effective rent calculation when estimating the properties’ value; and
(2) whether the tax court erred when it declined to reduce the value of one of the properties
to account for lease-up costs due to the property’s above-market vacancy rate. The
taxpayer, Tamarack Village Shopping Center, LP, appealed Washington County’s initial
assessments of the properties. At trial, the tax court heard testimony from three
witnesses—the taxpayer’s real property asset manager, the taxpayer’s expert appraiser, and
the County’s expert appraiser. Following trial, the tax court largely accepted the opinions
of the County’s appraiser and rejected the opinions of the taxpayer’s appraiser. The tax
court’s ultimate value conclusions increase d the properties’ assessed market value s over
the county assessor’s initial valuations. In this appeal, the taxpayer contends that the tax
court erred in its analysis by declining to use an effective rent calculation to determine
potential gross income and by not deducting certain lease-up costs from the indicated value
of one of the properties. Because the tax court did not err, we affirm.
3
FACTS
These consolidated cases come to us on the taxpayer’s appeal from two orders of
the tax court. Tamarack Vill. Shopping Ctr., LP v. County of Washington, Nos. 82-CV-20-
2003, 82-CV- 20-2004, 2023 WL 2669686 (Minn. T.C. Mar. 28, 2023) (trial order);
2023 WL 5537070 (Minn. T.C. Aug. 28, 2023) (post-trial order). The appeal concerns the
assessed market values of two contiguous parcels as of January 2, 2019 (the assessment
date). These values are used to calculate the real estate taxes due and payable in 2020.
Both parcels are part of the Tamarack Village Shopping Center (Tamarack Village), a
multi-tenant retail “power center” consisting of several related parcels in Woodbury.1 We
follow the lead of the parties and tax court in referring to the parcels individually as
“Center” and “Main, ” and collectively as “the properties” or “the subject properties.”
Center and Main comprise the majority of the taxpayer- owned portion of Tamarack
Village. The taxpayer challenged the properties’ assessed values in two separate petitions,
but the petitions were consolidated at the tax court and in this appeal.
In early 2019, shortly after the assessment date, the taxpayer worked with a broker
to market its portion of Tamarack Village for sale. Th e 2019 sale offering included the
two subject properties, as well as two additional parcels that are not part of this appeal. In
its efforts to sell the properties, the taxpayer prepared a confidential offering memorandum
that described Tamarack Village and the Woodbury commercial retail market in terms

1 A “power center” is “[a] large community shopping center with more than 250,000
square feet of space anchored by three or more tenants that occupy 60% to 90% of the
space; the number of specialty stores is kept to a minimum.” Appraisal Institute, The
Dictionary of Real Estate Appraisal 174 (6th ed. 2015).
4
attractive to potential investors. Relevant here, the memorandum marketed the properties
together and advertised a single occupancy rate across the entirety of the taxpayer-owned
parcels in Tamarack Village. The memorandum advertised the occupancy rate of
Tamarack Village at 95 percent and noted an overall 95 percent average occupancy rate
across Woodbury’s Interstate 94 retail corridor. It also described the Woodbury retail
market as “one of the Twin Cities’ strongest submarkets with superb trade area
demographics in the heart of one of the Twin Cities’ most dominant retail corridors.”
Center is a n aptly named circular parcel at the center of Tamarack Village with a
land area of 183,679 square feet. Center has been improved by construction of a single
multi-tenant commercial building containing 14 retail tenant spaces, ranging in size from
1,100 to 7,460 square feet. Constructed in 1996, the building is of good quality and was in
average condition on the assessment date. The Center building’s location inside the larger
Tamarack Village development increases its overall appeal. Center’s highest and best use
was its continued use as a multi-tenant retail shopping center. The county assessor valued
Center at $10,615,600 as of the assessment date.
As of the assessment date, Center had a vacancy rate of 16.89 percent—higher than
the 6 percent market vacancy rate in the Woodbury retail rental market. The tax court
found that this vacancy rate meant that Center was “technically destabilized.”
2 But the tax
court also found that “[n]othing about Center itself suggests that Center could not perform

2 A property is “destabilized” when it is not capturing its appropriate share of market
demand, either at a given point in time or over a specified projection period. Cf. Appraisal
Institute, The Dictionary of Real Estate Appraisal 219 (6th ed. 2015) (defining “stabilized
occupancy”).
5
at market occupancy” and that the above-market vacancy rate on the assessment date was
a “routine market fluctuation” and “would not influence a potential purchaser’s evaluation
of Center’s long-term income-earning capacity.”
The other parcel— Main—essentially surrounds Center. Main is a much larger
parcel, with an overall land area of 2,285,945 square feet and a usable land area of
2,198,825 square feet. Main has been improved by construction of eight buildings
comprised of 47 tenant spaces for commercial use, ranging in size from 959 to
87,996 square feet. The layout of structures is typical for a large retail center.
Constructed in 1996 and 2004, the Main buildings are of good quality and were in average
condition on the assessment date. Main’s highest and best use was its continued use as a
multi-tenant retail shopping center. The county assessor valued Main at $75,792,500 as of
the assessment date.
The taxpayer and the County presented expert opinions from professional
appraisers. The taxpayer’s expert was Kelsey Malecha, and the County’s expert was Ethan
Waytas.
As of the assessment date, free rent was not a common concession in the Woodbury
retail rental market, and the tax court found that the taxpayer did not offer free-rent
concessions to its tenants. The tax court based its finding on the testimony of the taxpayer’s
asset manager that Tamarack Village did not offer free rent, though it did not require
payment of rent during a 90- to 120-day initial build-out or fixturing period. The tax court
also noted that the County’s expert witness testified that he had not received any
information from Tamarack Village indicating that it had provided free rent.
6
All three witnesses testified that tenant improvement allowances were standard in
the Woodbury market as of the assessment date and that the taxpayer provided those
allowances at levels typical in the market. The tax court accepted this testimony.
We recognize three approaches for estimating the market value of real property: the
income (or income capitalization) approach, the sales (or sales comparison) approach, and
the cost approach. Inland Edinburgh Festival, LLC v. County of Hennepin, 938 N.W.2d
821, 825 (Minn. 2020); S. Minn. Beet Sugar Coop v. County of Renville, 737 N.W.2d 545,
555 (Minn. 2007). Malecha appraised the properties under the income and sales
approaches but did not complete a cost approach valuation. Waytas used all three
approaches in his appraisal.
The valuations of the county assessor, parties’ experts, and tax court are summarized
in the tables below.
Center
County
Assessor
Taxpayer
(Malecha)
County
(Waytas)
Tax Court
Sales Approach N/A $8,200,000 $11,860,000 $11,455,000
Income Approach N/A $8,150,000 $12,115,000 $12,121,000
Cost Approach N/A N/A $11,200,000 $11,200,000
Final Valuation $10,615,600 $8,150,000 $11,900,000 $11,900,000

Main
County
Assessor
Taxpayer
(Malecha)
County
(Waytas)
Tax Court
Sales Approach N/A $66,000,000 $89,555,000 $85,062,000
Income Approach N/A $65,975,000 $82,545,000 $82,582,000
Cost Approach N/A N/A $74,880,000 $74,880,000
Final Valuation $75,792,500 $65,975,000 $85,000,000 $83,000,000
In arriving at their final valuations, both experts, as well as the tax court, placed
primary weight on the value derived under the income approach and secondary weight
7
on the value derived under the sales approach. The tax court gave the income approach
70 percent weight and the sales approach 30 percent weight in reconciling its final
valuations. Waytas attributed tertiary weight to the value derived under the cost approach.
The tax court gave “scant weight” to the cost approach, accounting for that approach by
simply rounding down the weighted value it had reached after reconciling the other two
approaches.
Because the sales and cost approaches are not at issue, we set forth here only the
relevant aspects of the two experts’ valuations under the income approach. To provide
context to our discussion of the experts’ income approach valuations, we briefly summarize
the analytical steps relevant to this appeal.
“The income capitalization approach determines the value of income-producing
property by capitalizing the income the property is expected to generate over a specific
period of time at a specified capitalization yield rate.” Cont’l Retail, LLC v. County of
Hennepin, 801 N.W.2d 395, 402 (Minn. 2011). In this appeal, there are five relevant steps
to arrive at a valuation of real property under the income approach. 3 First, the appraiser
estimates the potential gross income of the subject property based on the income and
expense data for the subject property and comparable properties. Appraisal Institute, The
Appraisal of Real Estate 432 (15th ed. 2020). Second, the appraiser calculates the effective
gross income by subtracting from potential gross income the estimated vacancy and

3 Our description of these steps reflects the commercial retail property context. The
application of these steps may vary depending on the types of income derived by the
commercial property.
8
collection losses associated with applicable income streams. Id. Third, the appraiser
calculates the net operating income by estimating the total operating expenses of the subject
property and subtracting them from the estimated effective gross income. Id. Fourth, the
appraiser applies a direct or yield capitalization technique to the data to arrive at a n
“indicated value,” or final estimate of value, under the income approach. Id. Fifth, “[i] f
necessary,” the appraiser adjusts the indicated value to “account[] for the cost of leasing
up the property.” Id. We discuss the experts’ differing approaches to these five steps
below.
At the first step, the two experts estimated the properties’ potential gross income
based on a market rent estimate. In arriving at a market rent estimate, Malecha used eight
comparable retail spaces for Center and 15 comparable retail spaces for Main (inclusive of
the same eight comparables used for Center). Malecha’s comparables were based on retail
space at the subject properties in four size categories, and she did not adjust her
comparables to account for factors such as location or building quality. In the four size
categories, from smallest to largest, Malecha determined market rents of $20, $15, $12,
and $10 per square foot. She then employed an effective rent calculation, which reduced
the market rents to account for rent concessions and tenant improvement allowances,
amortized at 3 percent over a specified lease period. In each of the four respective size
categories, she applied rent concessions of 3, 3, 6, and 6 months and tenant improvement
allowances of $25, $20, $15, and $10 per square foot to lease periods of 5, 7, 10, and 12
years, resulting in effective rents of $13.56, $11.19, $9.54, and $8.55 per square foot.
9
Malecha used these effective rent estimates to calculate the potential gross income
of the subject properties. In doing so, she multiplied the amount of rentable square feet at
the subject properties in each class of retail space by her effective rent, and then totaled the
result from each class to arrive at a potential gross income for each property. Malecha
calculated the potential gross income of Center at $537,334 and Main at $4,647,962.
The tax court took issue with Malecha’s use of lease renewals, rather than new
leases, for three of her rent comparables. Nevertheless, the tax court’s “principal concern”
with Malecha’s rent comparables was her “failure to adjust . . . for pertinent elements of
comparison, and for location in particular.” It found that “Malecha’s failure to adjust her
rent comparables for retail location—pl ainly a critical consideration for investors (as the
offering memorandum demonstrates)—is sufficient in itself to un dermine the credibility of
her entire market rent analysis.”
The tax court also took issue with Malecha’s effective rent analysis. First, the tax
court found no justification for reducing market rent to account for free-rent concessions.
It noted that Malecha had conceded in her testimony that she had no evidence of any rent
concessions for either of the two largest classes of retail space among her comparables,
that the taxpayer’s real property asset manager had testified that the taxpayer did not offer
free rent, and that Waytas testified that free rent was not a common concession in the
market. Second, the tax court determined that there was no reason to adjust market rent
for tenant improvement allowances, because tenant improvement allowances were
standard in the retail rental market as of the assessment date and the taxpayer’s allowances
were at market levels and not excessive. The tax court noted that Malecha testified that
10
none of the allowances adjusted for in her effective rent calculations were excessive, that
the taxpayer’s asset manager testified that typical tenant improvement allowances in the
market were indeed far higher than those estimated by Malecha, and that Waytas testified
that recent allowances at the properties were consistent with the market and not atypical.
Waytas used 23 rent comparables of retail space in four size categories to arrive at
market rents of $24, $24, $19.50, and $11.25 per square foot. 4 Waytas used only new
leases for comparison. He adjusted the comparable leases to account for factors including
location, lease date, age, condition, and quality/appeal. The adjustments for location
included consideration of visibility, traffic, access, exposure, and trade-area purchasing
power based on population and household income. Waytas used his market rent estimates
to calculate the potential gross income of the properties as $945,045 for Center and
$6,514,701 for Main.
The tax court adopted Waytas’s estimates of potential gross income, in part because
it found his market rent analysis “more rigorous and persuasive” than Malecha’s analysis.
The tax court noted that the most important reason for crediting Waytas’s market rent
analysis over Malecha’s was his use of trade -area purchasing power to make a location
adjustment for each comparable lease. It also noted that Waytas had not relied on lease
renewals.
When determining an estimated market vacancy rate at step two, Malecha
concluded that the market vacancy rate for the Woodbury retail submarket was 5.3 percent

4 The size categories used by Waytas differed slightly from those used by Malecha.
11
and noted that, as of the assessment date, Center was 76.7 percent leased and Main was
97.9 percent leased.5 Waytas arrived at a 5 percent vacancy rate for the Woodbury retail
submarket but used a 6 percent vacancy rate in valuing the subject properties, noting the
historical vacancy rates at the properties.
The tax court declined to deviate from the market vacancy rate when valuing the
properties, notwithstanding Center’s much higher (16.89 percent) vacancy rate as of the
assessment date. It referred to the offering memorandum and observed that the properties
had a “common owner who operates them together and who plainly considers them
as—and recently marketed them as —related assets.” Additionally, noting that Center had
historically maintained high occupancy and that Main continued to maintain a
below-market vacancy rate on the assessment date, the tax court credited Waytas’s
testimony that Center’s recent above-market vacancy rate was a routine market fluctuation
and that his 6 percent market vacancy rate was consistent with investor expectations over
the holding period.
6 The tax court also credited Waytas’s testimony that management
decisions may have impacted Center’s occupancy and found that nothing about the
property itself suggested it “could not perform at market occupancy.” Lastly, the tax court

5 The tax court determined that Malecha’s figure for Center, which reflected a 23.26
percent vacancy rate, was based on an erroneous reading of the rent rolls on the valuation
date.

6 “Holding period” refers to “[t]he time during which a capital asset must be held to
determine whether gain or loss from its sale or exchange is long- term or short-term.”
Holding period, Black’s Law Dictionary (11th ed. 2019); see also Equitable Life Assurance
Soc’y v. County of Ramsey, 530 N.W.2d 544, 549 (Minn. 1995) (equating “holding period”
and “the term of ownership”).
12
agreed with Waytas’s testimony that using an above-market vacancy rate to value Center
required the unsupported assumption that Center would perform perpetually at that level
of vacancy. Accordingly, the tax court adopted Waytas’s 6 percent vacancy rate.
At the third step, both experts agreed that the sole non-recoverable operating
expense to be deducted in arriving at the net operating income was a replacement reserve.
The tax court adopted a replacement reserve calculation that neither party disputes.
At step four, both experts used the “direct capitalization” method, and Malecha also
performed a yield capitalization technique known as the “discounted cash flow” method.
The tax court declined to rely on Malecha’s discounted cash flow analysis, finding that
analysis unnecessary for valuing the properties and less reliable than the direct
capitalization method. The taxpayer does not argue that the tax court erred in relying solely
on the direct capitalization method.
Under the direct capitalization method, both experts estimated a capitalization rate
by looking to the rates implied by recent sales of comparable properties, investor surveys,
and the band of investment.
7 In doing so, Waytas derived a capitalization rate of 7 percent,

7 A capitalization rate is “[a] ratio of one year’s net operating income provided by an
asset to the value of the asset,” and it is “used to convert income into value in the
application of the income capitalization approach.” Appraisal Institute, The Dictionary of
Real Estate Appraisal 31 (6th ed. 2015).
The band of investment method derives a capitalization rate based on a weighted
average of rates that satisfy market return requirements of investors of both debt and equity
capital. See The Appraisal of Real Estate, supra, at 463–65.

13
while Malecha derived a capitalization rate of 6.75 percent. 8 The tax court adopted
Waytas’s slightly higher capitalization rate. After adjusting, or “loading,” the
capitalization rate to account for the portion of property tax borne by the taxpayer due to
vacancy, the tax court arrived at a 7.18 percent final loaded capitalization rate for Center
and a 7.19 percent final loaded capitalization rate for Main.
Malecha’s application of the capitalization rate differed between the two properties.
For Main, she applied her 6.75 percent capitalization rate to the property’s 2019 net
operating income estimate and arrived at an indicated value under the income approach of
$65,807,066. When calculating Center’s value, Malecha again used a 6.75 percent
capitalization rate. But Malecha did not apply that rate to her estimate of Center’s 2019
net operating income, as she asserted it would be inappropriate to capitalize “unstable” net
operating income. Instead, she calculated the 2021 net operating income of Center at
stabilized occupancy, indexed that value backward to the present value on the assessment
date, and finally applied the capitalization rate to the resulting value.9 In doing so, Malecha
arrived at an indicated value under the income approach of $8,359,807 for Center.

8 Although Malecha’s rate was lower than Waytas’s rate, and therefore less
advantageous to the taxpayer, the tax court observed that “its selection was problematic.”
Specifically, the tax court explained that because Malecha’s effective rents incorporated
above-the-line deductions for tenant improvement allowances, she ought to have
developed a capitalization rate that also treated such allowances as above-the- line
expenses, which Malecha conceded she did not do. The tax court concluded that if Malecha
had appropriately adjusted her capitalization rate data, it would have resulted in a lower
capitalization rate and, resultingly, higher valuations of the properties.

9 The back- indexed 2021 net operating income that Malecha capitalized was
$564,287—less than the 2019 net operating income that she calculated at $598,663.

14
For reasons not fully explained , Malecha then took deductions from the indicated
values of both properties to account for tenant improvements and lease-up costs.10 The tax
court surmised, and the taxpayer repeatedly asserts, that this deduction from the indicated
value of Center was intended “ to address costs a prospective purchaser would incur to
eliminate Center’s recent, above-market vacancy of almost 17%” at step five. Malecha’s
corresponding deduction taken from Main’s value remains unexplained, however, since
Main had a below-market vacancy rate. After incorporating these deductions and rounding,
Malecha arrived at indicated values of $7,950,000 for Center and $65,425,000 for Main
under the direct capitalization variant of the income approach.11
For his part, Waytas a pplied his 7.18 percent loaded capitalization rate for Center
and 7.19 percent loaded capitalization rate for Main, and after rounding, arrived at
indicated values of $12,115,000 for Center and $82,545,000 for Main under the direct
capitalization variant of the income approach. Waytas made no step-five deductions from
his indicated values. The tax court adopted Waytas’ preliminary value conclusions,
corrected clerical errors and, after rounding, derived final indicated values of $12,121,000
for Center and $82,582,000 for Main under the direct capitalization method.

10 The tax court surmised that the amount of the deduction from the indicated value of
Center was equivalent to the tenant improvement and lease-up costs in years one through
three of Malecha’s discounted cash flow calculation, while the amount of the deduction
from the indicated value of Main was equivalent to those costs solely from year one of
Malecha’s discounted cash flow calculation. We do not find substantiation for that
explanation in the record.

11 These figures do not match Malecha’s final indicated values under the income
approach because Malecha relied on her discounted cash flow analysis to arrive at those
value indications.
15
After reconciling these valuations under the income approach with its valuations
under the sales and cost approaches, the tax court ultimately ordered that Center’s assessed
value be increased from $10,615,600 to $11,900,000 and Main’s assessed value be
increased from $75,792,500 to $83,000,000. The taxpayer moved for amended findings or
a new trial, raising the two principal issues present in this appeal, along with other
arguments not before us. The tax court declined to amend its findings on procedural
grounds and, alternatively, on the merits. Because the tax court found that the challenged
facts in its prior decision were adequately supported by the record evidence, it denied the
request for a new trial. Upon the taxpayer’s petitions, we issued writs of certiorari and,
upon the parties’ joint motion, consolidated the cases on appeal.
ANALYSIS
This appeal concerns the valuation of real property for taxation purposes. A
taxpayer may challenge such a valuation by filing a petition with the tax court. See Minn.
Stat. § 278.01 (2022).
12 We conduct a limited and deferential review of the tax court’s
final decision. See Eden Prairie Mall, LLC v. County of Hennepin (EPM I), 797 N.W.2d
186, 192 (Minn. 2011). We review the tax court’s legal determinations de novo and its
factual findings for clear error. All. Hous. Inc. v. County of Hennepin, 4 N.W.3d 355, 357
(Minn. 2024).

12 Taxpayers generally must offer evidence to overcome the prima facie validity of an
assessment order. See S. Minn. Beet Sugar Coop v. County of Renville, 737 N.W.2d 545,
558 (Minn. 2007). Because the County waived the prima facie validity of its assessor’s
valuations, this appeal involves only the tax court’s determination of the properties’ market
values.
16
A tax court’s factual finding is “clearly erroneous” if it is “not reasonably supported
by the evidence as a whole.” Hansen v. County of Hennepin, 527 N.W.2d 89, 93 (Minn.
1995). “The inexact nature of property assessment necessitates that this court defer to the
decision of the tax court unless the tax court has either clearly overvalued or undervalued
the subject property, or has completely failed to explain its reasoning.” Id. The tax court
“brings its own expertise and judgment to the hearing, and its valuation need not be the
same as that of any particular expert as long as it is within permissible limits and has
meaningful and adequate evidentiary support.” Montgomery Ward & Co. v. County of
Hennepin, 482 N.W.2d 785, 791 (Minn. 1992). On appeals from the tax court, we will not
reweigh the evidence or reassess the credibility of witnesses. Medline Indus., Inc. v.
County of Hennepin, 941 N.W.2d 127, 131 (Minn. 2020).
I.
The taxpayer first challenges the tax court’s valuation of the properties under the
income approach , contending that the tax court erred by declining to calculate the
properties’ potential gross income based on an effective rent, rather than a market rent.
Real property is taxable in Minnesota, unless it is otherwise exempt. Minn. Stat.
§ 272.01, subd. 1 (2022). Real property is generally “valued at its market value” for
taxation purposes. Minn. Stat. § 273.11, subd. 1 (2022). Market value is “the usual selling
price at the place where the property to which the term is applied shall be at the time of
assessment; being the price which could be obtained at a private sale or an auction sale.”
Minn. Stat. § 272.03, subd. 8 (2022).
17
As noted above, we recognize three approaches for estimating the market value of
real property: the income (or income capitalization) approach, the sales (or sales
comparison) approach, and the cost approach. Inland Edinburgh Festival, LLC v. County
of Hennepin, 938 N.W.2d 821, 825 (Minn. 2020). “Whenever possible, appraisers should
apply at least two approaches to market value because the alternative value indications
derived can serve as useful checks on each other.” Equitable Life Assurance Soc’y v.
County of Ramsey, 530 N.W.2d 544, 553 (Minn. 1995). “However, the three valuation
approaches are neither exclusive nor mandatory and the quantity and quality of available
data ultimately determines which approaches are useful and how much weight each is
given.” Nw. Racquet Swim & Health Clubs, Inc. v. County of Dakota, 557 N.W.2d 582,
587 (Minn. 1997). “We ‘accord the tax court broad discretion in choosing which valuation
approach to use.’ ” Menard, Inc. v. County of Clay, 886 N.W.2d 804, 819 (Minn. 2016)
(quoting Evans v. County of Hennepin , 548 N.W.2d 277, 278 (Minn. 1996)). The
approaches to valuation are applied in light of a “property’s highest and best use.” Id. at
811. “The highest and best use of a property is the one that is physically possible, legally
permissible, financially feasible, and maximally productive.” Id.; see also The Appraisal
of Real Estate, supra, at 305.
The taxpayer’s appeal attacks the tax court’s valuation of the properties exclusively
based on perceived deficiencies in the tax court’s analysis of the income approach.
13 As

13 The taxpayer contends in its reply brief that its arguments about lease-up costs also
apply to the tax court’s analysis of the sales comparison approach. The taxpayer forfeited
this argument by failing to raise it in its principal brief. See Moorhead Econ. Dev. Auth. v.
Anda, 789 N.W.2d 860, 887 (Minn. 2010).
18
noted above, “[t]he income capitalization approach determines the value of
income-producing property by capitalizing the income the property is expected to generate
over a specific period of time at a specified capitalization yield rate.” Cont’l Retail, LLC
v. County of Hennepin , 801 N.W.2d 395, 402 (Minn. 2011). We have “recognized the
usefulness of the income approach in valuing income producing properties.” Nw. Racquet,
557 N.W.2d at 587. “Under the income capitalization approach, the appraiser determines
the value of the subject real property by dividing the net operating income of the property
by the capitalization rate attributable to the property.” EPM I, 797 N.W.2d at 195. Net
operating income is “the actual or anticipated net income that remains after all operating
expenses are deducted from gross income, but before debt service and book depreciation
are deducted.” Id.
As noted above, in this appeal there are five relevant steps to arrive at a valuation
of real property under the income approach: (1) estimation of the subject property’s
potential gross income; (2) calculation of the subject property’s effective gross income by
subtracting the estimated vacancy and collection losses; (3) calculation of the subject
property’s net operating income by estimating its total operating expenses and subtracting
them from the estimated effective gross income; (4) application of a direct or yield
capitalization technique to the data to arrive at a final estimate of value; and (5) “[i]f
necessary,” adjustment of the value indicated at the prior step to “account[] for the cost of
leasing up the property.” The Appraisal of Real Estate, supra, at 432.
The taxpayer’s first argument concerns the proper calculation of potential gross
income at step one. When the income generated by an investment property primarily takes
19
the form of rent, a fee- simple property valuation will estimate the value of rentable space
using market rent levels. EPM I, 797 N.W.2d at 195. “Market rent, or the rent that could
be obtained in the open market, may be different than the actual rent negotiated by the
parties to a lease.” Archway Mktg. Servs. v. County of Hennepin, 882 N.W.2d 890, 897
(Minn. 2016). “To calculate the market rent of the subject property, an appraiser often
gathers, compares, and adjusts rental data” from comparable leased properties reflecting
arm’s length transactions. Id.
To develop an estimate of market rent by comparing leases with different
provisions, appraisers sometimes use an analytical tool known as “effective rent.” The
Appraisal of Real Estate, supra, at 421–22. Effective rent reflects “the total base rent, or
minimum rent stipulated in a lease, over the specified lease term minus rent concessions—
e.g., free rent, excessive tenant improvements, . . . and other leasing incentives.” Id. at 422.
We have clarified that an effective rent calculation may be necessary “[w]here market
conditions require rent concessions.” EPM I, 797 N.W.2d at 195. “Tenant improvement
allowances are rent concessions that provide tenants with financial assistance to construct
improvements to the leased space.” Eden Prairie Mall, LLC v. County of Hennepin
(EPM II), 830 N.W.2d 16, 21 (Minn. 2013). “[W]hether tenant improvement allowances
should be deducted to arrive at effective market rents must be determined on a case-by-case
basis” by looking to whether they are “excessive or atypical” in the market. EPM I,
797 N.W.2d at 196.
“When an appraiser determines it is appropriate to deduct tenant improvement
allowances, the appraiser must decide whether those allowances should be considered an
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‘above-the-line expense’ or a ‘below-the-line expense.’ ” EPM II, 830 N.W.2d at 21. “An
‘above-the-line expense’ is recorded ‘above’ the net operating income line and is
considered part of the total operating expenses for the property.” Id. “In contrast, a
‘below-the-line expense’ is recorded ‘below’ the net operating income line and is not
considered part of the total operating expenses for the property.” Id. “Generally, tenant
improvement allowances ‘are the most common line items recorded below the net
operating income line.’ ” Id. (quoting Appraisal Institute, The Appraisal of Real Estate
480 (13th ed. 2008)). “If tenant improvements are considered as above-the-line expenses,
they are subtracted from market rents to determine effective market rents.” Macy’s Retail
Holdings, Inc. v. County of Hennepin, Nos. 27-CV-09-15221, 27-10 -CV-08453, 27-CV-
11-07991, 27-CV-12-10082, 2014 WL 5823033, at *14 (Minn. T.C. Nov. 6, 2014) (citing
EPM II, 830 N.W.2d at 21). “If, on the other hand, tenant improvements are considered as
below-the-line expenses, they are addressed through the selection of the appropriate
capitalization rate.” Id. (citing EPM II, 830 N.W.2d at 21). Whether adjusted above or
below the line, the comparable properties used to derive the capitalization rate must
account for tenant improvements on the same basis to maintain internal consistency and
avoid artificially inflated or lowered value indications. Id.
A straightforward application of our case law supports the tax court’s decision not
to utilize an effective rent calculation. Here, it is uncontested that the taxpayer’s tenant
improvement allowances were typical of the market, and our case law is clear: Where
tenant improvement allowances are not a typical or excessive, they function as a
below-the-line expense that is recovered through market rent. See EPM I, 797 N.W.2d at
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195–96; EPM II, 830 N.W.2d at 21. Under the direct capitalization method, an appraiser
assumes that the operating expenses required to generate revenue will be stable over the
holding period. See Appraisal Institute, The Appraisal of Real Estate 459 (15th ed. 2020).
As the tax court correctly reasoned, because a market-level tenant improvement allowance
is an anticipated below-the-line expense used to estimate market-level rent over the holding
period, market rent incorporates a corresponding, amortized repayment of a market-level
tenant improvement allowance. An effective rent calculation is therefore not required to
account for a market-level tenant improvement allowance. See EPM I, 797 N.W.2d at
195–96. Accordingly, because the taxpayer’s tenant improvement allowances were typical
of the market, the tax court did not err in declining to use an effective rent calculation.
The taxpayer attempts to avoid the clear command of our previous decisions by
arguing that an effective rent calculation was nevertheless required for three reasons. First,
the taxpayer assert s a theory based on a general principle that real property be valued
“as-is” on the assessment date. Second, the taxpayer argues that its position is supported
by the Uniformity Clauses of the United States and Minnesota Constitutions. And third,
the taxpayer contends that fixturing or build- out time at the beginning of leases at the
properties is “free rent.” We discuss these arguments in turn.
A.
The taxpayer contends that Minnesota law imposes a duty to appraise property
subject to taxation, which “requires that real property values be determined based upon the
improvements that existed in their current condition on the assessment date” and that any
deviation from this standard “results in the appraisal of a hypothetical property rather than
22
the real subject property in question.” The taxpayer argues that this asserted requirement,
which we refer to as a “current condition requirement,” arises from Minnesota statutes and
case law.14
The taxpayer relies on three statutes to support its current condition requirement.
First, the taxpayer cites Minnesota Statutes section 272.03, subdivision 1(a) (2022), which
reads: “For the purposes of taxation, . . . ‘real property’ includes the land itself, . . . all
buildings, structures, and improvements or other fixtures on it, . . . and all rights and
privileges belonging or appertaining to the land . . . .” (Emphasis added.) Second, the
taxpayer cites Minnesota Statutes section 273.08 (2022), which reads: “The assessor shall
actually view, and determine the market value of each tract or lot of real property listed for
taxation, including the value of all improvements and structures thereon, . . . and shall
enter the value opposite each description.” (Emphasis added.) Third, the taxpayer cites
Minnesota Statutes section 273.11, subd ivision 1, which provides that, subject to limited
exceptions, “all property shall be valued at its market value” and that “[i]n assessing any
tract or lot of real property, the value of the land, exclusive of structures and improvements,
shall be determined, and also the value of all structures and improvements thereon, and the
aggregate value of the property, including all structures and improvements.” (E mphasis
added.)
The taxpayer also supports its current condition requirement by citing to five
opinions without explaining their significance. In the first, Bloomington Hotel Investors,

14 The taxpayer refers to this as the “as-is” requirement. To avoid confusion with other
usages of that term in appraisal practice, we refrain from doing so.
23
LLC v. County of Hennepin, we concluded that the tax court did not clearly err in adopting
an expert’s estimated reserve for replacement fund based on reasoning that, in part,
reflected the tax court’s conclusion that “the income approach requires that the subject
property is valued in its current condition and, under Minnesota law, only items fully
deteriorated and in need of immediate repair should be categorized as deferred
maintenance.” 993 N.W.2d 875, 888 (Minn. 2023) (emphasis omitted).
The taxpayer also cites four tax court opinions, all of which relate to property that
was not currently at its highest and best use due to existing structures or conditions of the
property. A rcadia Dev. Corp. v. County of Hennepin, Nos. TC-12755, TC-15430,
1992 WL 366495, at *3–4 (Minn. T.C. Dec. 10, 1992), amended (Minn. T.C. Jan. 26,
1993) (finding that where the market value of land improved with a mobile home park had
an alternative highest and best use, the property’s valuation on the assessment date required
a deduction for costs associated with closing the park); Weed v. County of Hennepin ,
No. TC-11220, 1991 WL 169083, at *2 (Minn. T.C. Aug. 15, 1991) (affirming county
assessor’s valuation because taxpayer failed to establish overvaluation but noting, in dicta,
that county had produced a second estimate of market value with a highest and best use for
the property as vacant and the second appraisal was higher than the initial assessed value
after accounting for demolition of structure); Brastad v. County of Hennepin, Nos.
TC-5365, TC–5425, 1987 WL 12481, at *4–5 (Minn. T.C. May 28, 1987) (finding that
where an improved industrial parcel had a highest and best use as a more intensive
industrial use, market valuation at a higher use would be reduced to account for soil
remediation and structure demolition, among other things); Koneck v. County of Hennepin,
24
No. TC-5322, 1987 WL 9996, at *2 (Minn. T.C. Apr. 16, 1987) (finding that market value
of lot with an unusable structure required a deduction for demolition and site-preparation
costs).
The above statutes and opinions do not create the sweeping requirement that the
taxpayer ascribes to them. Rather than “requir[ing] that real property values be determined
based upon the improvements that existed in their current condition on the assessment date”
and that “[a]ny deviation from [this] standard results in the appraisal of a hypothetical
property rather than the real subject property in question,” as the taxpayer contends, these
authorities stand for the more limited proposition that the valuation of real property must
account for the market value of the land and the improvements or structures upon it. See
Minn. Stat. §§ 272.03, subd. 1(a); 273.11, subd. 1. None of the taxpayer’s authorities
undermine the appropriateness of the income approach— with its focus on cashflows and
investor expectations rather than cost of physical improvements—in estimating the market
value of real property. To decide otherwise would run contrary to the cases in which we
have approved the tax court’s treatment of tenant improvement allowances under the
income approach. See EPM II, 830 N.W.2d at 21; 444 Lafayette, LLC v. County of
Ramsey, 830 N.W.2d 25, 30 (Minn. 2013).
Moreover, the opinions cited by the taxpayer are simply inapposite. The proper
classification of deferred maintenance, the issue in Bloomington Hotel, is not in dispute
here. And this appeal does not involve properties that would require demolition,
reconstruction, or remediation to achieve their highest and best use, like the properties at
issue in the four tax court opinions cited by the taxpayer. To the contrary, the parties agree
25
that Center and Main are already at their highest and best use as a multi-tenant retail
shopping center. As a result, no adjustment is necessary to properly value the properties
at their highest and best use.
B.
The taxpayer next argues that our decision in Bloomington Hotel Invs., LLC v.
County of Hennepin, 993 N.W.2d 875 (Minn. 2023), requires the use of an effective rent
calculation under the Uniformity Clauses of the United States and Minnesota
Constitutions.
15 U.S. Const. art. I, § 8; Minn. Const. art. X, § 1. The taxpayer appears to
suggest that failing to use an effective rent calculation to exclude so-called “non-existent
tenant improvements” results in the taxation of non-taxable, non-real property in violation
of the Uniformity Clauses.
The taxpayer’s constitutional argument relates to the following passage from
Bloomington Hotel:

15 The County contends that the taxpayer forfeited this argument by failing to raise it
before the tax court and addressing it for the first time in its opening brief before this court.
In general, a relator forfeits arguments not raised before the tax court. See Macy’s Retail
Holdings, Inc. v. County of Hennepin, 899 N.W.2d 451, 455 n.2 (Minn. 2017) (citing
Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988)). But an argument is not forfeited when
an intervening change in the law makes available an argument that would have previously
been futile. Leiendecker v. Asian Women United of Minn., 895 N.W.2d 623, 631–33
(Minn. 2017). As the taxpayer notes, we decided Bloomington Hotel after briefing and oral
argument had concluded on its post-trial motions before the tax court. Because we can
easily resolve this question on the merits, we will set aside the forfeiture issue and address
the taxpayer’s argument on the merits. See Stone v. Invitation Homes, Inc., 4 N.W.3d 489,
494 (Minn. 2024) (stating that a forfeited theory may be overlooked where “decisive of the
matter at hand” and presenting “ ‘no possible advantage or disadvantage to either party’ ”
(quoting Holen v. Minneapolis-St. Paul Airports Comm’n, 84 N.W.2d 282, 286
(Minn. 1957))).
26
[W]e reject Bloomington Investors’ argument that the use of the management
fee method is unconstitutional. The United States and Minnesota
constitutions require that similarly situated properties be taxed uniformly.
U.S. Const. art. I, § 8; Minn. Const. art X, § 1. And as stated above, one rule
that must be applied uniformly is that non-taxable non-real property value
must not be included in the taxable assessed value of property. Accordingly,
if the management fee method failed to effectively separate the value of
taxable real estate assets from non-taxable assets while the parsing
income/proxy rent method much more effectively distinguished the value of
taxable real estate assets from non-taxable assets, then use of the ineffective
method may present a constitutional uniformity problem. But because we
conclude that the management fee method is not so flawed that it is
ineffective as a matter of law for use in separating the value of taxable real
estate assets from non-taxable assets, Bloomington Investors’ constitutional
uniformity argument fails.

993 N.W.2d at 886–87 (emphasis added). The taxpayer relies solely on the phrase, “one
rule that must be applied uniformly is that non-taxable non-real property value must not be
included in the taxable assessed value of property,” Bloomington Hotel, 993 N.W.2d at
887, to support its contention that “the inclusion of non-existent tenant improvements and
non-existent occupancy in the tax value is unconstitutional.”
This contention misses the mark because the taxpayer has not raised the same
constitutional concern discussed in Bloomington Hotel. The Uniformity Clause of the
Minnesota Constitution provides that “[t]axes shall be uniform upon the same class of
subjects.” Minn. Const. art. X, § 1.
16 We have said that the scope of protection under this

16 Bloomington Hotel also referred to the Uniformity Clause of the United States
Constitution. 993 N.W.2d at 887. This reference was an error because that provision
imposes a restriction on congressional, rather than state, authority, and Bloomington Hotel
dealt only with state taxation. See U.S. Const. art. I, § 8 (“The Congress shall have Power
To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for
the common Defence and general Welfare of the United States; but all Duties, Imposts and
Excises shall be uniform throughout the United States . . . .”). Accordingly, we do not
address the taxpayer’s invocation of the federal Uniformity Clause.
27
clause is “identical” to that of the Equal Protection Clause of the United States Constitution.
Minn. Automatic Merch. Council v. Salomone , 682 N.W.2d 557, 561 (Minn. 2004). The
taxpayer in Bloomington Hotel asserted that valuation under the management fee method
of the income approach was constitutionally impermissible because it was less effective
than a different approach (the parsing income/proxy rent method) at distinguishing between
a full-service hotel’s income attributable to real property and income attributable to food
and beverage and other retail or service operations. 993 N.W.2d at 886–87. In that appeal,
the constitutional argument advanced in the taxpayer’s brief alleged disparate treatment by
the tax c ourt, which used the management fee method despite its decision to reject that
method in favor of the parsing income/proxy rent method in an earlier case involving a
different full-service hotel.
In this appeal, the taxpayer makes no similar claim of disparate treatment. The
taxpayer offers no comparator and otherwise fails to connect this appeal to the Minnesota
Constitution’s guarantee of uniform taxation. Because t he taxpayer raises no colorable
Uniformity Clause claim, such a claim provides no support for the taxpayer’s overarching
argument for an effective rent calculation.
C.
The taxpayer also argues that the tax court should have used an effective rent
calculation given the evidence that Tamarack Village offered new tenants a 90- to 120-day
no-rent period for build-out and fixturing. Specifically, the taxpayer argues that the tax
court should have considered whether the fixturing or build- out time amounted to “free
rent” by considering the substance of the concession rather than the terminology used to
28
describe it by sophisticated market participants, including the taxpayer’s own asset
manager.
This argument does not overcome our deference to the tax court’s factual findings
on clear error review. See All. Hous. Inc. v. County of Hennepin, 4 N.W.3d 355, 357 (Minn.
2024). The tax court reasonably relied on the testimony of all three witnesses, including
the taxpayer’s own witnesses, in concluding that free rent was not present in the market
and not offered by Tamarack Village. Like the taxpayer’s own asset manager, the tax court
reasonably distinguished between free rent and no-rent periods for build-out and fixturing
time, and we see no reason to conclude that the tax court clearly erred in finding that “free
rent” was neither standard in the market nor offered by the taxpayer. Accordingly, because
the no-rent periods for build-out and fixturing were not “free rent,” they provided no basis
for an effective rent, rather than market rent, calculation in determining potential gross
income.
II.
The second issue in this appeal concerns whether, under the income approach to
appraisal for taxation purposes, the tax court erred by not deducting lease- up costs from
the indicated value of Center given its above-market vacancy rate on the assessment date.
This issue involves the final relevant step under the income approach, when an appraiser
takes the indicated estimate of value after application of the appropriate capitalization rate
and, “[i]f necessary, calculate[s] a rent-up adjustment for the value indication that accounts
for the cost of leasing up the property.” The Appraisal of Real Estate, supra, at 432.
“[A]djustments may be necessary to account for lease-up costs and the time involved in a
29
lease-up” because in fee-simple valuations, all rentable space, including vacant space, is
estimated at market rent levels and on market terms. Id. at 421.
The taxpayer challenges the tax court’s decision not to make a lump-sum deduction
to account for lease-up costs ostensibly necessary to bring Center up to market levels of
occupancy. The tax court reasoned that a deduction to account for Center’s above-market
vacancy rate in a fee-simple valuation was unnecessary.17 In coming to that determination,
the tax court credited Waytas’s opinion that lump-sum stabilization adjustments were
unwarranted. In its post-trial order, the tax court noted that, although deductions for
lease-up costs may be necessary in some circumstances, such a deduction was not required
in this instance . The taxpayer argues that the tax court’s reasoning ignores the factual
destabilization of Center’s vacancy rate and fails to account for lease-up costs to achieve
stabilization that would be expected in the market.
Whether or not the taxpayer’s legal argument holds water, this issue is squarely
resolved by the factual record. Although the taxpayer and tax court both assumed that
Malecha’s deduction from the indicated value was intended to account for lease-up
expenses given Center’s above-market vacancy rate, her written appraisal report provides
no indication as to her purpose in making the deduction. When questioned by the
taxpayer’s counsel at trial about her deduction from Center’s indicated value under the
direct capitalization method, Malecha discussed it as accounting for below-the-line

17 A fee-simple valuation assesses the value of “absolute ownership unencumbered by
any other interest or estate, subject only to the limitations imposed by the governmental
powers of taxation, eminent domain, police power, and escheat.” The Appraisal of Real
Estate, supra, at 60.
30
expenses to be deducted from net operating income, even though her written report treats
those expenses as a deduction from indicated value. In response to follow-up questions
from the taxpayer’s counsel, Malecha appeared to justify the deduction in the context of a
discounted cash flow analysis.18 Further complicating the assertion that Malecha believed
this deduction for lease-up costs was necessary due to the above-market vacancy rate at
Center is her decision to take an analogous deduction from the indicated value of Main,
notwithstanding that property’s below-market vacancy rate. On cross-examination by the
County regarding the lease-up deduction from the indicated value of Main, Malecha said
that it was intended to account for the actual lease-up costs— such as lease commissions—
of specific tenants at Main whose leases were “rolling over.” Malecha further testified on
cross-examination that she performed a similar analysis on Center as she did on Main.
In sum, Malecha’s written report did not explain the nature of the deductions, her
testimony was inconsistent with her written report and failed to justify the properties’
similar treatment despite their different circumstances, and Waytas credibly testified that
no stabilization adjustment was warranted because Center’s above-market vacancy rate
was a temporary market fluctuation. Given this factual record, and regardless of the legal
standard, the taxpayer did not present the tax court with evidence that lease-up costs should

18 As noted above, the taxpayer did not appeal the tax court’s decision not to credit
Malecha’s discounted cash flow analysis, and that decision is not at issue here.

31
have been deducted. Accordingly, the tax court did not clearly err in declining to deduct
lease-up costs to account for Center’s above-market vacancy rate on the assessment date.19
CONCLUSION
For the foregoing reasons, we affirm the decision of the tax court.
Affirmed.

HENNESY, J., not having been a member of the court at the time of submission,
took no part in the consideration or decision of this case.

19 Because we conclude that the record does not support a factual finding in favor of a
lease-up deduction, we need not address the taxpayer’s additional legal arguments in
support of such a deduction.