71 A.D.2d 84 | N.Y. App. Div. | 1979
OPINION OF THE COURT
In this tax certiorari proceeding involving assessments for the tax years 1972 through 1975 inclusive, the issue presented for review is whether Xerox’s market data appraisal is the proper method of valuation for Xerox’s research, manufacturing and warehousing complex in the Town and Village of Webster, New York.
The Xerox complex comprises 55 buildings on 1,032 acres of land. The buildings contain approximately bVz million square feet of space and had an average age of 3.7 years as of 1972, the first assessment year. Manufacturing accounts for approximately 50% of the space, research facilities 24%, warehousing
For the year 1972 the complex was assessed at a full value of $129,195,200.
The trial court held that Xerox’s comparable sales were not comparable and that Xerox had not sustained its burden of proving that its property was worth less than the assessed value and confirmed the town’s $129,195,200 appraisal. In a memorandum decision, the court stated that the large disparity between the values arrived at by the cost and market approaches indicated that the market approach employed by Xerox did not yield a realistic value. By way of example, the court noted that in the year immediately preceding 1972, Xerox had completed construction of 10 buildings at a total cost of $37,561,000, yet its market approach appraisal indicated that the total value of the entire complex several months later was only $40,000,000.
Section 306 of the Real Property Tax Law requires that all property be assessed at its full value. Generally, market value provides the most reliable valuation for assessment purposes (see People ex rel. Parklin Operating Corp. v Miller, 287 NY 126, 129). Unique properties for which there is no
Xerox presented a market approach appraisal comprising sales of manufacturing and warehousing plants in different areas of the country. Xerox’s expert witnesses believed that in order to be marketable, it would be necessary to subdivide the Xerox complex and sell it in parts. Through subdivision they calculated the complex could be marketed on a national basis in 3 to 5 years. The Xerox appraisal placed the greatest weight upon five sales which were the same ones given most weight by A & P in the Great Atlantic & Pacific Tea Co. (supra) case. Each of these sales was a single building, ranging in size from 400,000 to 1,200,000 square feet, used either for manufacturing or warehousing. The property sizes ranged from 97 to 176 acres. None of the properties had laboratory facilities and none had extensive site improvements in addition to the building.
Xerox’s appraiser made adjustments to the sales in order to render each comparable to the Xerox complex as a whole. The adjustments fell into four categories: age, quality and condition; level of functional utility; economic climate; and marketability and size. The Xerox appraiser made large positive adjustments, ranging from + 20% to + 125%, to each sale to reflect the Xerox complex’s superior quality and condition. He adjusted each negatively for functional utility, testifying that these adjustments reflected that the high proportion of office and research space at the Xerox complex made it less flexible than each of the sales, which were largely single function
The court was correct in holding that these sales, even as adjusted, were not comparable to the Xerox complex and were not reliable indicators of its value. The present case is sufficiently distinguishable from Matter of Great Atlantic & Pacific Tea Co. v Kiernan (supra) in that, even though these sales were reliable comparables to the A & P plant, they are not comparable to the Xerox complex. First, the A & P plant and all of the sales are single buildings whereas the Xerox complex comprises 55 separate buildings. Second, the A & P plant, at 1,500,000 square feet, was only slightly larger than the largest of the sales which ranged from 400,000 to 1,200,-000 square feet, while the Xerox complex, at 5,500,000 square feet, is several times the size of even the largest sale. Third, the Xerox complex acreage is many times larger than that of the A & P plant and the sales. Fourth, the A & P plant and all of the sales were manufacturing and warehousing facilities, while the Xerox complex comprises a variety of manufacturing, warehousing and laboratory buildings. Finally, the disparity between the $16,700,000 cost approach appraisal and the $13,900,000 market value approach appraisal of the A & P plant was not as severe as the disparity between the $40,000,-000 market approach appraisal and Xerox’s own $92,749,820 cost approach appraisal.
The Xerox market value appraisal is defective for several other fundamental reasons. Xerox admitted that there was little or no market where properties the size of the Xerox complex are actively bought and sold. However, they sought to cure this problem on the basis that the Xerox property could be subdivided and sold in parts. The basis for subdividing is supported by the evidence that the manufacturing and warehousing portions of the Xerox complex are of sufficient size and flexibility to be adaptable for use by other types of industries.
Xerox’s appraisal which proceeded upon this theory was
In addition, the marketability adjustments decreased the value of the Xerox property because of its size. Xerox’s appraiser testified that he decreased the value of the Xerox property 12% per year for a 3- to 5-year holding period that would be required to subdivide and sell the complex.
Speculation on a sale over a period of time and a discount of the subject property is novel to New York tax assessment and condemnation valuation procedures. Although Matter of Great Atlantic & Pacific Tea Co. v Kiernan (42 NY2d 236, supra) mentioned the possibility of subdividing, it did not suggest that there be speculation concerning how long it would take to sell the subdivided property and a concomitant discount to compensate for this period.
Because this is a tax certiorari rather than a condemnation proceeding, the court was not obliged to arrive at a value for the Xerox property unless Xerox carried its burden of proving that the assessment was erroneous (Matter of Pepsi-Cola Co. v Tax Comm, of City of N. Y., 19 AD2d 56; Matter of Seagram & Sons v Tax Comm, of City of N. Y., 18 AD2d 109, 110, affd 14 NY2d 314). For the reasons stated above, Xerox’s market approach appraisal was not sufficient to carry this burden. In addition, the court determined that Xerox exposed several deficiencies in Webster’s cost approach appraisal, most importantly, the possibility that it included items, such as movable partitions, which were arguably not taxable as realty. However, it held that Xerox did not succeed in proving that correction of these errors would reduce Webster’s $164,473,500 appraisal to a figure below the $129,195,-200 assessment. Accordingly, the court’s confirmation of the assessment should be affirmed.
Xerox contends secondly that, if we find the cost approach to be the proper method of valuing the Xerox property, we
Xerox could have presented both appraisals at trial, arguing that it considered the market approach proper but, in the event the court disagreed, it was putting into evidence its cost approach appraisal as well. This dual approach would have been appropriate inasmuch as the Court of Appeals has suggested the use of flexible approaches to valuátion in exceptional cases where a single theory of valuation is inappropriate. In G.R.F., Inc. v Board of Assessors of County of Nassau (41 NY2d 512), the court sanctioned an appraisal consisting of a combination of a cost approach appraisal and an income approach appraisal in order to arrive at the true value of an unusual Gimbel’s store in a shopping center. The court noted that "such combinations should be avoided where possible. Pragmatism, however, requires adjustment when the economic realities prevent placing the properties in neat logical valuation boxes” (41 NY2d 512, 515, supra).
The case should not be remanded for Xerox to put in its cost approach appraisal. First, we do not decide that the cost approach is the proper method for valuing the Xerox property; rather, we hold that Xerox has failed to prove with its market approach appraisal that the assessment was erroneous. Second, Xerox should not be permitted, at this point, to change its strategy, particularly since its reliance solely on the market approach appraisal was a well-considered and reasonable strategic choice, not an error based upon uncertainty of the law or an improperly prepared appraisal (see Matter of City of New York [Freeman Estates—First Nat. Stores], 27 AD2d 243; Matter of Pepsi-Cola Co. v Tax Comm, of City of N. Y, 19 AD2d 56, supra).
Cardamone, J.P., Schnepp and Doerr, JJ., concur; Whmer, J., not participating.
Order affirmed, with costs.
Unless otherwise noted, all figures concern the 1972 tax year.