28 N.J. Tax 363
N.J. Tax Ct.2015Background
- Property: two adjoining lots in Hackensack improved with a one‑story, circa‑2005, ~4,100 sq ft freestanding bank branch with drive‑throughs; combined lot ~38,332 sq ft in B2 commercial zone; subject of tax years 2009–2011 assessments.
- Plaintiff (TD Bank) challenged municipal assessments of $3,568,500; parties stipulated lots are a single economic unit and both experts used income capitalization (Defendant’s expert also used cost).
- Trial featured one appraiser for each side; dispute centered on market rent, vacancy/expense assumptions, capitalization rates, and whether the property is a special‑purpose property necessitating the cost approach.
- Court found the income capitalization approach appropriate (property not a special purpose), credited certain comparables from each side, rejected unsupported adjustments and methodologies, and adopted specific vacancy, expense and cap‑rate assumptions.
- Court rejected much of Plaintiff’s time‑trend and locational adjustments as unsupported and discounted Plaintiff’s expert for factual verification failures (wrong construction year, unverified data).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Appropriate valuation method | Income cap approach reflects income producing use; market decline post‑2007 supports lower rent/cap rates | Cost approach appropriate because freestanding, owner‑designed bank branch is special purpose and nearly new | Income capitalization is appropriate; property not a special purpose warranting exclusive use of cost approach |
| Comparable leases & adjustments | Six leases + market overview justify time, location, physical adjustments and declining rents after 2007 | Six different leases with adjustments; relied on market sale/lease data and ACLI/RERC to support higher rents | Court accepted only a subset of comparables (one from Plaintiff, three from Defendant) and rejected unsupported adjustments (time, per‑capita, arbitrary % location/age adjustments) |
| Vacancy/collection and operating expense assumptions | Higher vacancy (5%→8.5%) and various expense items (4% mgmt + 5% brokerage + misc) based on surveys and interviews | Lower, stabilized vacancy (4%) and combined 5% management/brokerage; lower reserves | Adopted a 6% vacancy/collection rate; adopted 4% management + 4% brokerage, 1% reserves, 1% misc expense |
| Capitalization rate selection | Higher cap rates (~8.25–8.75%) based on surveys and band‑of‑investment; market instability justifies higher rates | Lower market‑derived cap rates (6.96% for 2009–2010; 6.71% for 2011) supported by sales and ACLI/PwC data and band‑of‑investment | Adopted Defendant’s cap rates: 6.96% for 2009 & 2010 and 6.71% for 2011 |
Key Cases Cited
- Pantasote Co. v. City of Passaic, 100 N.J. 408 (1985) (describes presumption of correctness for municipal assessments and burden to rebut).
- Transcontinental Gas Pipe Line Corp. v. Township of Bernards, 111 N.J. 507 (1988) (addresses limits of presumption when assessment methodology is patently defective).
- Township of Byram v. Western World, Inc., 111 N.J. 222 (1988) (discusses evaluation of valuation evidence and presumption).
- Ford Motor Co. v. Township of Edison, 127 N.J. 290 (1992) (burden of proof remains on taxpayer even after overcoming presumption).
- Glen Wall Assocs. v. Township of Wall, 99 N.J. 265 (1985) (trial court must apply independent judgment to valuation data submitted by experts).
- Polzo v. County of Essex, 196 N.J. 569 (2008) (expert testimony must provide the why and wherefore; net opinions inadmissible).