107 Misc. 2d 169 | New York Court of Claims | 1980
OPINION OF THE COURT
This claim is for damages arising from the temporary de facto appropriation of claimant’s interest in property located in midtown Manhattan in New York City. The taking was effectuated by an unconstitutional statute which unreasonably interfered with claimant’s use of the property by temporarily preventing the claimant lessee from demolishing a building thereon. Damages found in two prior trials were determined to be legally improper by the Court of Appeals and the case was remitted to this court on the issue of damages. (Keystone Assoc, v State of New York, 45 NY2d 894.)
This matter has been the subject of extensive litigation and detailed expositions of the facts underlying this claim can be found in various decisions. (See Matter of Keystone Assoc, v Moerdler, NYLJ, Sept. 19,1966, p 15, col 3, affd 26
The temporary appropriation here was the said eight-month period claimant was delayed in developing the property. The Court of Appeals has determined that claimant’s measure of damages is the fair rental value of the property for the said period as of the time thereof. (Keystone Assoc, v State of New York, 45 NY2d 894, supra; concurring in part and dissenting in part opn of Greenblott, J., 55 AD2d 85, 90, supra.) This value is to be ascertained on the basis of what a willing lessee would pay for the eight months carved out of claimant’s leasehold by the taking and what a willing lessor would accept therefor. (See Keystone Assoc, v State of New York, 45 NY2d 894, supra; concurring in part and dissenting in part opn of Greenblott, J., 55 AD2d 85, 90, supra.) The Court of Appeals further found that the property was intended to be
There is no question the highest and best use of the property at the time of the taking was for the construction of a high-rise office and showroom building. The difficulty in this case arises from the widely divergent final values found by the parties and the different methods used by them in arriving at these values. The State’s appraiser found a rental value of $340,000, based on the rental value of the vacant land plus an increment for the development that had been achieved at the time of the taking. Claimant’s appraiser found a rental value of $1,600,000, based on the net rental income that would have been realized upon completion of the building had there been no taking, said income being discounted to its market value at the time of the taking. Despite their differences, we find both methods proper ones to consider in ascertaining the requisite rental value, that is, we do not find the methods per se wrong as a matter of law. Nonetheless, we do find that significant factual errors are present in each appraiser’s implementation of his respective method and these errors largely explain the excessiveness of claimant’s ultimate conclusion of rental value on one hand and the inadequacy of defendant’s on the other. The significance of these errors could perhaps have been minimized'had the parties been a bit more open minded in their approaches to this admittedly
Considering the State’s method first, as indicated, the initial evaluation there was of the net rent of the vacant land. Defendant’s appraiser did this by first finding a total value from comparable sales for subject’s land before demolition, then deducting out the cost of demolition to find a vacant land value and then applying a safe rate of interest to arrive at an economic net rent for the vacant land. Fortuitously, claimant’s appraiser also made a vacant land valuation (albeit not for the same reason as defendant’s appraiser)
Both appraisers used five comparable sales and had three in common. While the failure of claimant’s appraiser to appropriately adjust for demolition costs caused his land value before demolition to be inflated, the use by defendant’s appraiser of an attenuated unit value caused an at least comparable undervaluation of his land value.
We now shall consider claimant’s method. It is noted initially that while the State did not prepare any income projections for this trial, it did prepare three separate such projections for use in one of the two prior trials. Although utilized for purposes other than the ascertainment of the rental to be found here (i.e., they were used to show that projected annual cash flow or profits were increased by the taking), they do provide contrasting data for all elements of claimant’s method save the last and most critical element (the discount factor) and defendant’s appraiser supplied testimony as to that factor. Thus, as observed, there is a range as to all elements of claimant’s method.
As discussed, the first part of claimant’s method was the derivation of the projected net rental income that could reasonably have been expected had the taking not intervened. This was done by first projecting a 30-month construction period from the beginning of demolition to the completion of the basic building (i.e., to the top floor, but not including tenant work). This resulted in a projected completion date of November 16, 1968, at which time it
Dealing first with the 30-month estimate, we note defendant used a 21-month period (albeit for a 41-story versus a 42-story building), claimant’s engineering expert opined a 34- to 38-month period and the construction period for the 42-story building actually built was noted in one of defendant’s appraisals at one of the prior trials as 32 to 39 months. The court observes that if a period slightly longer than 30 months were used, the actual and projected rentals would have been higher. Since we believe the increase in rentals actually experienced during the construction of the building was somewhat higher than what a prospective sublessee would have anticipated at the time of the taking, claimant’s use of a 30-month period most likely resulted in a reasonably accurate projection of rentals as hypothetically viewed from the time of the taking.
Nonetheless, as found above, while claimant’s appraiser may have used the right time frame in which to estimate rentals, he used the wrong building. Instead of a 42-story building, he should have based his rental estimate on a 41-story building. This was the basis for defendant’s Plan I income projection and thus we have relied primarily on this projection in establishing a range of values with claimant’s figures. Claimant’s use of the wrong building resulted in an overestimate of gross rental income in the
Applying claimant’s rate of 5% for vacancies and contingencies results in a corrected effective gross income of less than $7,400,000 and brings us to another significant factual error in claimant’s appraiser’s calculation, to wit, his estimate of operating expenses. He listed $468,000 in income from tenant electric charges, but only $310,000 in electric expenses, a profit of over 50%. Further, that $310,000 in expenses presumably included provision for public electricity, an item which defendant estimated at about $135,000, which works out to an even more exorbitantly excessive profit from tenant charges for electricity. Obviously claimant’s estimate of the electric expense item was grossly inadequate. Considering all the evidence, we believe claimant’s estimate for operating expenses was understated by about another $200,000. This results in an estimate of net income after debt service of about $2,600,000, versus claimant’s original estimate of about $3,000,000.
Reducing this $2,600,000 annual rental income to eight months (see p 175, supra) results in an applicable net rental income before discount of $1,733,000, compared to claimant’s $2,000,000. Applying claimant’s 8.5% discount factor (i.e., .8162) results in a final rental figure of less than $1,415,000, versus claimant’s $1,600,000. Under defendant’s Plan I, its cash flow or annual net rent of $1,677,000 would translate into an eight-month rental
As observed, the most critical part of claimant’s method is the discount which was applied to the projected income to translate it into the final rental figure. This discount is supposed to reflect the market value in 1966 that a willing lessor and lessee would have placed on the subject prospective income to be produced two and one-half years later, taking into account not only the fact that such income was future income (i.e., the present value factor), but also that it was income to be derived from a building not yet built although just about to be built (i.e., the risk factor). Claimant’s appraiser contended a return of 8.5%, 2.5% above the then safe or present value rate of 6%, would reflect that value and those factors, or in other words, a sublessee would be willing to pay $1,600,000 in 1966 for the chance to get $2,000,000 two and one-half years later. Defendant’s appraiser considered the risk factor much more significant and gave an offhand estimate of 20% to 25% for a total return rate as being more reflective of what the market would call for. Using a 25% figure would reduce the noted final rentals by about 30% (based on rough computations by the court), giving a range for claimant’s, the court’s and defendant’s figures of $1,138,000, $986,000 and $636,000 respectively for claimant’s method. Of course, it must be remembered that this method is ultimately based on income projections, which are to be considered as an element in ascertaining the final fair rental value, although the application of the discount factor theoretically takes this into account. Thus, despite the mathematical attractiveness of claimant’s method, the court has not relied exclusively on it. Rather, we have considered the above results as providing a range with defendant’s method, as well as being complementary to it in the sense of giving an indication of the increment above mere land value that is reasonable for the stage of development of the property at the time of the taking.
In closing, it is observed that the court doubts the application of other methods or the presentation of more comparable ones would significantly vary the range of values as found herein. The valuation required at bar is of necessity theoretical, involving as it does projections from a time
Therefore, based on the foregoing and all the evidence in this case, we find the fair rental value of the subject property at and for the duration of the taking to be $800,000. Pursuant to stipulation, claimant’s award is to be reduced by $154,701.11 already received.
Accordingly, claimant is entitled to an award of $645,298.89 for all damages, with interest thereon from September 16, 1966 to November 16, 1966
. Claimant’s expert developed a land value to aid in his determination of his discount factor.
. While both appraisers used a unit value based on the building area permitted by zoning, the State’s appraiser added a 20% bonus to all sales and subject and then an additional 20% to just four of the sales. This second bonus had the effect of reducing the unit value of these sales and appeared unrealistic for at least two of the sales since it postulated building areas in excess of 1.4 and 1.9 million square feet. Buildings of such large size were not shown to be common in the relevant market and the use of the second bonus thus had the effect of unrealistically deflating market value.
. We note the $1.23 million in guarantee deposits would be returned upon successful completion of the project and claimant would receive the interest thereon in the meantime. Nonetheless, the fact these deposits had been made was of value since it was that much less a prospective sublessee would have to come up with.
. We note the partial use of actual rentals in arriving at a gross rental income was not error since what actually occurred is some evidence of what was anticipated to occur at the time of the taking.
. The extra floor had 20,479 square feet and additional extra rental space of 3,326 square feet obtained by enclosure of the mezzanine was not provided for until 1969. Hence, by using the rental space of the building as actually built, claimant’s appraiser overestimated rental space by at least 23,800 square feet. Using claimant’s rental estimates of $7.49/square foot and $8.95/square foot for these areas respectively results in an overestimate in gross income of $183,155. This overestimate in building space also resulted in an additional overestimate of gross income from tenant electric charges by another $11,903 (23,805 square feet at $.50/square foot), for a total overestimate of more than $195,000.
. Claimant’s appraiser’s estimate of real estate taxes did not vary significantly from defendant’s and the farmer’s seemed more appropriately grounded. His use of the actual versus an average ground rent also seemed proper since the taking here carved eight months out of the beginning of claimant’s leasehold, not the end of it or some part in the middle. Finally, claimant’s appraiser’s estimate of debt service appeared more in accord with the actual financing claimant had at the time of taking than defendant’s estimate.
. The damages found here were incurred continuously during the course of the taking period. Hence we deem this an appropriate case to compute interest from “a single reasonable intermediate date.” (CPLR 5001, subd [b].) The court finds such date to be the approximate midpoint of the taking period, namely, September 16, 1966. However, subdivision 1 of section 19 of the Court of Claims Act requires suspension of interest six months after “the accrual” of a claim where filing does not occur until more than six months after accrual. Here the claim accrued when the taking first began, which was when the demolition permit was denied on May 16,1966. Thus the suspension under said section 19 commences six months after that date (Nov. 16, 1966) and ends on the date of the filing of the claim (May 11, 1968).