Florida rejects valuation method on resort

Don Lippert, Jr. 
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Barb Walker
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Matthew Kalina
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The District Court of Appeal of Florida, Fifth District, recently rejected the use of the Rushmore valuation method to assess real property owned and operated by Disney Parks and Resorts. Specifically, the Court determined that the use of the method improperly included the value of intangible assets in the property’s assessed value.1

Background Orange County, Florida is the well-known home to Walt Disney World, which covers 43 square miles (27,258 acres) and is approximately the same size as San Francisco and two times the size of Manhattan.2 In 2015, the Orange County appraiser assessed the value of the Disney Yacht & Beach Club Resort, one of Disney’s premium properties, at nearly $337 million, an increase of 118% over the prior year’s value. Disney appealed the assessor’s value.

At the trial court, both parties agreed to the use of an income approach to value the property, but disagreed as to the methodology in performing the assessment. The senior valuation expert from the Orange County appraiser’s office testified to using the Rushmore method to assess the property.3 To begin, the valuation expert computed the average daily rate (ADR) of the rooms at the property to arrive at gross potential room income. The potential room income was then multiplied by a 75% occupancy rate. Next, the Rushmore method was used to calculate the property’s ancillary income, and that amount was added to the effective room income, ultimately resulting in the near $337 million assessment.4

At trial, Disney argued that the Florida Constitution prohibits counties from levying ad valorem taxes on intangible personal property,5 and provided expert testimony reflecting its disagreement with the proposed assessment. Disney’s experts determined that the property’s intangible values to be excluded from a real property assessment included the following elements: (i) cash / working capital; (ii) favorable operating licenses; (iii) assembled workforce; and (iv) brand, copyright and goodwill. Disney’s experts valued the property enterprise at approximately $342 million, and the overall assessment of the property at approximately $181 million.

The trial court ultimately concluded that the assessor’s effective gross room income calculation was proper, but Disney’s value of the property based on its restaurant retail and spa spaces was appropriate. Based on these adjustments, and the erroneous inclusion of intangible property in the valuation, the trial court determined that the just value of the property was approximately $209 million.6

Appellate Court disagrees with Rushmore method, but remands for reassessment Following an appeal by the assessor, the Appellate Court agreed with the lower court to the extent that the assessor’s use of the Rushmore method impermissibly included Disney’s intangible business assets in its assessment. Specifically, the Rushmore method requires franchise and management fee expenses to be deducted from total property income in determining its value, which purportedly removes the business value from the assessment. However, it does not provide for adjustments to the gross business income for intangible business value prior to making an expense deduction. The Appellate Court noted that “by taking a percentage out of a business’s net income for management and franchise fee expenses, without first removing intangible business value from that gross income stream, the Rushmore method does not remove a business value from an assessment; to the contrary, we conclude that the Rushmore method ignores the fact that an intangible business value may be directly benefiting a business’s income stream.” In support of its conclusion, the Appellate Court referenced a California decision that concurred with the unlawful valuation of intangible property.7

Having concluded that the Rushmore method was inappropriate, the Appellate Court then reviewed the trial court’s assessment for “competent substantial evidence.”8 The Appellate Court determined that while the trial court used testimony and evidence presented to reassess property by using the income capitalization approach, the trial court’s assessment was invalid on the basis that Disney’s assessment of the rental value of the restaurant, retail and spa spaces did not meet the competent substantial evidence standard. Among other issues, the Appellate Court noted that Disney’s valuation took into account market rental rates of freestanding restaurants rather than on-site hotel restaurants, and failed to account for the value of conference center space.

As a result, the Appellate Court could not fully resolve the dispute, and instead remanded the case to the trial court with instructions for the Orange County assessor to perform a new assessment of Disney’s property. The assessor was specifically instructed not to use the Rushmore method in the new valuation, as a means to ensure that intangible items are not included in the assessed value of the property.

Commentary Real property tax assessments of mixed-use properties are often difficult to accurately complete, and affected taxpayers along with state courts often challenge these determinations. This decision closely analyzes the components of a property that is difficult to assess in part because of the relatively few comparable types of properties, and because of the potential for including embedded intangibles in the assessment value. The Rushmore method’s intrinsic incorporation of the value of intangible property in the valuation of hotels and motels is particularly problematic when used to determine a real property tax valuation. Specifically, the simple deductions for management and franchise fees provided by the Rushmore method may not sufficiently eliminate the value of related intangibles. It should be noted, however, that the need for a second assessment reflected the Appellate Court’s unwillingness to simply accept the taxpayer’s valuation method. This leaves the trial court with another potential valuation battle to come unless the assessor and the taxpayer settle this matter.

1 Singh v. Walt Disney Parks and Resorts US, Inc., No. 5D18-2927, 2020 WL 3394725 (Fla. Dist. Ct. App. June 19, 2020).
2 Magic Guides, Walt Disney World Statistics, 2018,
3 The Rushmore method for valuing hotel and motel real estate was published in 1984 by Stephen Rushmore and gained popularity among county assessors. See HVS International, The Valuation of Hotels and Motels for Assessment Purposes, Stephen Rushmore & Karen E. Rubin, April 1984.
4 The valuation expert explained that in the case of appraising a hotel, the ancillary income was all income that is not from room revenue. He determined that the property at issue earned nearly $74 million in ancillary income. The valuation expert added the effective room income and ancillary income, then deducted an 80% expense factor from that value, consisting of 70% hotel operation expenses, a 4% management fee expense, and 6% for the franchise fee expense. Following that adjustment, the valuation expert divided the net operating income by a 9.732% capitalization rate, and subtracted nearly $16 million for tangible personal property value, leading to the final assessment of nearly $337 million.
5 FLA. CONST. Art. VII, § 9.
6 The trial court found that Appraiser improperly considered income from the business activities conducted on the Property in establishing the just value of the Property. It also rejected Appraiser’s contention that the intangible assets identified by Disney did not qualify as intangible property. It held that Appraiser was “essentially asking this Court to unlawfully expand the statutory definition of ‘real property’ to include something other than ‘land buildings, fixtures, and other improvements to land…”
7 Citing SHC Half Moon Bay v. County of San Mateo, 171 Cal. Rptr. 3d. 893, 911 (Ct. App. 2014). Like Florida, California law prohibits appraisers from assessing the value of intangible business assets in a property assessment.
8 See Jones v. Portofino Tower One Homeowners Ass’n., 77 So. 3d 242, 244 (Fla. 1st DCA 2012).

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