December 19, 2016
from the Superior Court of the District of Columbia
(CVT-9455-09) Hon. John M. Campbell, Trial Judge.
Appeal from the Superior Court of the District of Columbia
W. Zoffer for appellant.
L. Wilson, Senior Assistant Attorney General, with whom Karl
A. Racine, Attorney General for the District of Columbia,
Todd S. Kim, Solicitor General, and Loren L. AliKhan, Deputy
Solicitor General, were on the brief, for appellee.
A. Taylor, Jr., and Matthew Wright filed a brief for amicus
curiae Omni Shoreham Corporation in support of appellant.
BEFORE: FISHER and BLACKBURNE-RlGSBY, Associate Judges; and
NEBEKER, Senior Judge.
case came to be heard on the transcript of record and the
briefs filed, and was argued by counsel. On consideration
whereof, and as set forth in the opinion filed this date, it
is now hereby
and ADJUDGED that the judgment of the Superior Court is
Fisher, Associate Judge
year the District of Columbia ("the District")
estimates the market value of real property to assess
taxes. Appellant CHH Capital Hotel Partners, LP
("CHH"), owner of the Capital Hilton Hotel
("Capital Hilton" or "the Hotel"),
contends that the Superior Court erroneously sustained an
assessment for the 2009 tax year that failed to properly
distinguish the value of the Hotel's real property from
the value of its other business components. We hold that the
trial court did not err in concluding that CHH had failed to
carry its burden of proof. Finding no reversible error with
respect to the other rulings challenged on appeal, we affirm.
Capital Hilton, located at 100116th Street, Northwest, is a
14-story, full-service hotel offering, among other things,
544 guestrooms, a restaurant, meeting spaces, and a health
club. The hotel building was originally constructed and
opened for business during the Second World War. CHH
purchased the Hotel in 2007.
Hovermale, an assessor with the District's Office of Tax
and Revenue ("OTR"), conducted the 2009 tax year
assessment of the Hotel, valuing its real property-the land
and improvements on the land-as of the January 1, 2008,
valuation date. Using the income capitalization approach,
Hovermale initially assessed the real property at $124, 937,
100. CHH administratively appealed the assessment, and OTR
sustained Mr. Hovermale's valuation.
next appealed to the Board of Real Property Assessments and
Appeals("BRPAA" or "the
Board"). Prior to the Board's hearing on the matter,
OTR accepted additional information, including an income and
expense report for the 2008 calendar year and a CHH plan
forecasting substantial capital outlays for the next five
years. Mr. Hovermale updated his income and expense
projections, accepted and discounted some-but not all-of the
intended capital expenditures, and submitted to the Board a
revised assessment of $118, 701, 607. Explaining only that it
had "accept[ed] the [OTR] recommendation for a reduced
value, " the Board nevertheless lowered the assessment
to $113, 148, 379. CHH paid the taxes levied against the
Hotel and appealed to the Superior Court, seeking a reduction
in the assessed value and a refund of excess taxes paid.
taxpayer bears the burden of proving that the District's
assessment is "incorrect or illegal, not merely that
alternative methods exist giving a different result."
Safeway Stores, 525 A.2d at 211; see also
Super. Ct. Tax R. 12 (b). At a four-day trial, CHH presented
testimony from real estate appraisal expert David Lennhoff,
who criticized the District's use of a form of the income
capitalization method known as the "Rushmore
Approach" (for its creator Stephen Rushmore) and
championed an alternative-one he had developed-called the
"Business Enterprise Approach" ("BEA"
also known as the "Lennhoff Approach"). Using BEA,
Mr. Lennhoff valued the Hotel's real property at $95,
700, 000. In conducting his analysis, he assumed that the
Hotel would undergo major renovations planned for 2008 even
though, at the time he assessed the property, he was aware
that CHH did not, in fact, renovate as projected. Since on
the valuation date, a prospective buyer would not have known
about the ultimate departure from the renovation plans, Mr.
Lennhoff thought it inappropriate to consider the actual
income collected and expenses incurred after the valuation
Clark, an assessor with OTR, described the Rushmore-based
process Mr. Hovermale had apparently used to assess the
Capital Hilton. Rafael Menkes, a major properties assessor
with OTR-who the court permitted to testify as an expert for
the District in spite of CHH's contention that he was not
sufficiently experienced in hotel valuation-testified that,
using the Rushmore method, he valued the Hotel's real
property at $126, 432, 000. He also explained the logic
underlying Mr. Hovermale's assessments and pointed out
flaws in the methodology backed by Mr. Lennhoff.
testimony revealed that both the Rushmore Approach and BEA
use historical operating revenue and expenses to project a
company's future net income. Further, under both methods,
appraisers identify and deduct income derived from intangible
property and personal property to isolate income attributable
to real property.  The approaches diverge on the details of
implementation. With regard to intangible assets, the
Rushmore Approach deducts management and franchise fees and,
if necessary, adjusts for any residual intangibles. BEA takes
these deductions and another for business start-up costs. Mr.
Lennhoff contended at trial that the business start-up
deduction removes from the income stream unaccounted-for
costs associated with getting a hotel up and
running-assembling and training a workforce, advertising a
new business, and the like-which remain in the value of the
property. He maintained that such a deduction is necessary
even when valuing a property like the Capital Hilton, which
has been operating since the 1940s. Devotees of the Rushmore
Approach insist that hotels are ...