Download HAGE JGC v. STATE OF NEW YORK, #2009-018

HAGE JGC v. STATE OF NEW YORK, #2009-018-048, Claim No. 105407
Synopsis
Claimant seeks remuneration from the State for a partial permanent appropriation of his property
pursuant to Highway Law § 30 and the Eminent Domain Procedure Law (EDPL). The
appropriation left this property and all surrounding properties with no legal access. Claimant is
awarded $278,000 with interest.
Case Information
UID:
2009-018-048
Claimant(s):
J.G.C. HAGE REALTY, INC.
Claimant short name:
HAGE JGC
Footnote (claimant name) :
Defendant(s):
STATE OF NEW YORK
Footnote (defendant name) :
Third-party claimant(s):
Third-party defendant(s):
Claim number(s):
105407
Motion number(s):
Cross-motion number(s):
Judge:
DIANE L. FITZPATRICK
Claimant’s attorney:
BOND, SCHOENECK & KING, LLP
By: H. Dean Heberlig, Jr., Esquire
Defendant’s attorney:
ANDREW M. CUOMO
Attorney General of the State of New York
By: Roger B. Williams, Esquire
Assistant Attorney General
Third-party defendant’s attorney:
Signature date:
October 2, 2009
City:
Syracuse
Comments:
Official citation:
Appellate results:
See also (multicaptioned case)
Decision
Claimant seeks remuneration from the State for a partial permanent appropriation of his
property pursuant to Highway Law § 30 and the Eminent Domain Procedure Law (EDPL). This
claim has not been assigned or submitted to any other Court or tribunal for audit and
determination and was timely filed on December 28, 2001. Claimant was personally served
with a copy of Map No. 43, Parcel No. 51, on May 7, 1999, with Map No. 18, Parcel No. 25, on
October 29, 1999, and Map No. 44, Parcel No. 52, on or about February 25, 1999. The Court
adopts the descriptions of the appropriated property as shown on the maps and descriptions filed
in the Oneida County Clerk’s Office, copies of which are attached to the claim and incorporated
herein by reference. The Court has viewed the property.
The State appropriated a portion of a parcel of property owned by the corporate Claimant,
J.G.C. Hage, (Claim No. 105407) known as 4744 Commercial Drive, Town of New Hartford,
Oneida County. This will be called the “front” parcel and is the subject of this claim.
Contiguous to this parcel and behind it, in relation to Commercial Drive is a second parcel
owned by Joseph M. Hage (Claim No. 105406), which was the subject of another claim as it was
also affected by the taking although the State did not appropriate any of it.1 This will be called
the rear parcel. As a result of the taking, both properties were left with no legal access.
By stipulation, the date of the State’s appropriation was April 1, 1999.2
The subject parcel is owned in fee by J. G. C. Hage Realty, Inc. The property is
improved with a one-story retail/office building with 172 feet of frontage on Commercial Drive.
Despite a factual dispute in the appraisal reports3 as to the size of the building, the parties
ultimately stipulated that it was 3,648 square feet, as calculated by Defendant’s appraiser. The
building is a wood frame, single story structure on a concrete slab foundation, built in 1960 and
completely renovated in 1993. The interior is finished with drywall partitions, drop ceilings,
fluorescent lighting and carpeted floors. The current floor plan provides private offices with
open areas and handicap accessible restrooms. The building has modern electrical service, a
security system, and smoke and fire detection. It is in average condition. Before the taking,
there was also a paved parking area with access driveways.
The size of the lot was also in dispute and the parties could not reach an agreement.
Claimant’s appraiser determined that the before taking lot size was 22,914 square feet while
Defendant’s appraiser calculated that it was 21,844 square feet. Neither appraiser explained
their calculations. Using the deed description and the tax maps, the Court calculated the lot to
be 21,990 square feet. This is close to a computer generated size, from Exhibit EE, showing the
lot size to be 21,962 square feet, although one side of the lot dimensions used in this calculation
is slightly less than the deed description.4 As a result, the Court will use its calculation of the
square footage, 21,990, based upon the deed description.
The property is located in the Town of New Hartford on Commercial Drive, a newly
developed area with retail and office buildings. It is zoned RB-1-Retail Business which permits
a variety of commercial uses including office, retail, restaurants and banking facilities.
Given the location of this property, both appraisers found that the highest and best use
before the taking to be commercial. Claimant found that based upon the physical characteristics
of the property, and the use of similar buildings in the area, use of the land as vacant permitting
suitable building for retail or office occupancy would be the highest and best use. Defendant
found that the property’s existing use as a commercial building was its highest and best use.
Highest and best use has been defined as the “reasonable, probable and legal use....which is
physically possible appropriately supported, financially feasible, and that results in the highest
value.” (Northville Industries Corp. v State of New York, Ct Cl, Sise, P.J., dated January 31,
2002, Claim No. 97489 [UID #2001-028-021], quoting American Institute of Real Estate
Appraisers, The Appraisal of Real Estate, 305 [12th ed. 2001]). The Court finds that before the
taking highest and best use of the property is as a commercial building.
To value the subject property, the experts used the sales comparison, cost and income
capitalization approaches. The State moved at trial to strike Claimant’s cost approach on the
ground that the foundation for replacement cost and the valuation amount was inadequate. The
Court reserved and that motion is now denied as the cost approach was used simply as an aid in
evaluating the property in conjunction with the other methods (Bond v State of New York, 24
AD2d 778). The cost approach was given very little weight by the appraisers and by this Court.
Both appraisers relied most heavily on the Sales Comparison Approach and the Court also found
this approach most useful in valuing this property. Although the other approaches were
considered, they have been given less weight in this Decision.
SALES COMPARISON APPROACH
Claimant’s expert selected four sales of commercial property in the area that he
considered comparable on a whole-to-whole basis with the subject. These were sales 9, 10, 11,
and 12, in his appraisal report. Sales 9 and 10 were also used by Defendant’s expert, Mr.
Stropp, (P-5 and P-4 respectively). For Sale 10, (P-4) the experts had different square footage
for both the building and the lot size. Without a means for the Court to verify the actual size of
the building and lot, the Court has not given Sale 10 or P-4 much weight. Sale 12 was not
considered because it was sold as part of a bankruptcy proceeding which may have affected its
value. Also, the much larger size of the lot and building and distance from the subject makes it
unreliable as a comparable.
To Sale 9 and 10, Mr. Gardner made a 3% per year market trend adjustment to reflect
significant gains in property values in the area between 1997 and 1999. The market trend
adjustment was based upon an October 1, 1999 valuation date which the Court has modified to
reflect the stipulated valuation date of April 1, 1999.
Mr. Gardner adjusted Sale 9 for the building quality and the site. He made a 10%
adjustment for the subject building’s superior finish and improvements. Mr. Gardner found the
subject building site much larger, with greater frontage, and commercial potential, warranting a
35% adjustment. He made identical adjustments to Sale 10 for the same reasons. The Court
finds a -5% adjustment should be made to Sale 9 to reflect that its building is larger than the
stipulated square footage of the subject.
To Sale 11, Mr. Gardner made a 15% adjustment for the subject’s better condition and a
-10% adjustment because the existing building on the sale property was better designed for
retail use. He also made a 10% adjustment for the subject’s larger building site with greater
frontage.
Sale 11 is a well-supported comparable to the subject with a very similar lot and building
size. The sale occurred within four months of the valuation date and required no market trend
adjustment. The Court does find a -5% adjustment should be made for the sale property’s
location in the Sangertown Square area, which Mr. Stropp indicated was an area of more growth
and sale activity.
Mr. Gardner’s values per square foot were $82.68 for Sale 9, $84.00 for Sale 10, and
$85.94 for Sale 11. With the Court’s modifications to Sales 9, 10 and 11, the square foot values
are adjusted to $78.65 for Sale 9, $83.03 for Sale 10, and $82.20 for Sale 11. Based upon his
analysis, Mr. Gardner found the square foot value of the subject property as improved, was $84;
adjusted for the stipulated square footage the total value is $306,432 ($84 X 3648).
Defendant’s expert, Mr. Stropp, first valued the land-only for the Sales Comparison
Approach. He used the same analysis and comparables to value the land alone for this approach
and the cost approach. He used four sales he labeled, L-1, L-2, L-3 and L-4. The Court has not
considered L-1, as the property was seven times larger than the subject and the sale was five
years before the stipulated valuation date.
Mr. Stropp made a -20% adjustment to L-2 and -10% adjustment to L-4 to reflect the
premium paid by the buyers of those properties. The owner of L-2 was motivated to purchase
near his existing business to maintain the same customer base. L-4 was purchased by an
adjoining property owner to accommodate the purchaser’s need for additional space with his
existing property. The Court finds these adjustments should be increased to -25% for L-2 and
-15% for L-4. A -10% adjustment was also made by Mr. Stropp to L-2 to reflect its better road
frontage on two streets. The Court also finds a 5% size adjustment must be made to L-2. A
20% adjustment was made to L-3 to reflect its less desirable location on Commercial Drive. A
10% adjustment was also made to L-3 and L-4 to reflect the significantly larger size of these
parcels since larger parcels typically have a lower square footage value. The Court finds these
adjustments are too small and should be increased to 15%.
Mr. Stropp found the range of values per square foot, based upon his adjustments, were
$9.95 for Sale L-2, $6.58 for L-3, and $5.12 for L-4. With the Court’s modifications, the
adjusted values are $9.80 for L-2, $6.98 for L-3, and $5.05 for L-4. Mr. Stropp’s analysis
determined the subject land-only value was $7 per square foot or $153,000. This must be
adjusted for the square footage of the site as determined by the Court ($7 X 21,990) to $153,930.
Mr. Stropp also valued the site improvements (i.e., the asphalt and gravel parking area, the patio
sign and landscaping) at $10,000 for a total land value of $163,930.
Next, Mr. Stropp assessed the improved value of the property using this approach. Mr.
Stropp considered three comparable improved property sales, P-4, P-5, and P-6. P-4 was the
same as Mr. Gardner’s Sale 10, and P-5 was the same as Sale 9. Mr. Stropp made an aggregate
adjustment of $97,000 (55.4%) to sale P-4 consisting of $83,000 (47.4%) for land and site
improvements and $14,000 (8%) for the smaller building size of the sale property. For P-5, Mr.
Stropp made an aggregate adjustment of $48,000 (22.3%) consisting of $58,000 (27%) for land
and site improvements and -$10,000 (-4.65%) for the larger square footage of the sale building.
To P-6, Mr. Stropp made an aggregate adjustment of -$96,000 (25.6%) consisting of -$37,000
(9.9%) for land and site improvements to reflect the larger size of the sale parcel. He deducted
$129,000 (34.4%) for the significantly larger building. He added $35,000 (9.3%) respectively
for the condition and utility of the building.
With these adjustments, Mr. Stropp found the range of values to be $272,000 for P-4,
$263,000 for P-5, and $279,000 for P-6. Using this approach, Mr. Stropp valued the subject at
$270,000 or $74.01 per square foot.
Mr. Gardner also used the Sales Comparison Approach to value the land-only for
purposes of his Cost Approach Analysis. Since the valuation of the land alone is necessary to
properly assess damages in this action, the Court will consider Mr. Gardner’s land-only valuation
at this point as well as with the Cost Approach Analysis.
Mr. Gardner used four comparable Sales, 3, 4, 6, and 7, to arrive at a land-only value for
the subject. Sale 6 was not considered by the Court as its actual size was underestimated in the
Claimant’s appraisal report and was actually more than 40,000 square feet larger than the subject.
Sale 6 also has superior road frontage and atypical owner financing.
The Court finds the location adjustment for Sale 7 was excessive and should be reduced
to 20%. The market trend adjustment for Sale 3 should also be reduced to 4.5% to reflect the
stipulated valuation date. With these modifications, the range of land values for Sales 3, 4, and
7 were $10.91 for Sale 3, $10.24 for Sale 4, and $11.94 per square foot. Based upon his
analysis, Mr. Gardner determined the land value would be $11.00 per square foot. Using the
square footage of the lot, as found by the Court, the subject land value using $11 per square foot
is $241,890.
After the appropriate adjustments and consideration of each expert’s analysis and range of
values for the land-only valuations, the Court determines the land value of the subject is $9.00
per square foot or $197,910. As improved, the Court finds based upon this approach that the
value of the subject property is $79.50 per square foot or $290,000(R).
THE COST APPROACH
The Cost Approach involves valuing the property as if vacant and estimating the
replacement costs of the building and site improvements. Depreciation, physical deterioration,
and functional and economic obsolescence are then deducted from the replacement cost. This
approach is generally less relied upon due to the entirely subjective nature of the depreciation
deductions, resulting in the risk of over or under estimation (see People ex rel. Parklin Operating
Corp. v Miller, 287 NY 126, 130; Matter of Frontier Park v Assessor of Town of Babylon, 184
Misc 2d 354, 364). Although considered, this approach was not heavily relied upon by the
Court or the experts in valuing the subject property - particularly since this property was not a
specialty (see Nicolay v State of New York, 38 AD2d 611).
As set forth above, Claimant’s expert determined that the land value of the subject was
$11 per square foot or $241,890. It should be noted that although he opined that the existing
structure on the subject property would be demolished and a new structure built to achieve the
highest and best use, it was his opinion that there was no need to adjust for demolition costs.
His comparable Sales 3 and 7 also had other structures that were demolished to allow for new
construction.
To complete the cost approach, Mr. Gardner added to his land values the replacement
cost of the building and site improvements, less depreciation. He used estimates from Marshall
& Swift’s Valuation Services, a resource also used by Defendant’s expert for actual cost estimates
for the construction of similar buildings and site improvements. The depreciated replacement
cost of the building, after deducting 62.5% for total depreciation, as determined by Mr. Gardner
was $90,000 and the site improvement value was $7,500. This was based on the larger building
size, the Court has adjusted these figures for the smaller stipulated square footage (3,648)
resulting in an adjusted replacement cost of $82,080.
The land value of $11.00 per square foot for 21,990 square feet is $241,890, and adding
the adjusted replacement costs and site improvement, he found the value for the subject property
using the cost approach would be $331,470.
Mr. Stropp, as set forth above, under the Sales Comparison Approach, determined the
vacant land value for the subject; adjusted for the Court’s determined square footage of the lot
was $153,930 with $10,000 for site improvements. This equates to $7.00 per square foot for the
land. To this land value, Mr. Stropp determined that the value of the existing building, based
upon the replacement cost less 48.70%, depreciation was $107,401, for a total value using the
cost approach of $271,331.
The Court has found that the value for the subject land is $9 per square foot or $197,910.
To this figure, the Court has added $8,000 for site improvements for a total value for the land of
$205,910. With no real means to assess replacement cost for a new building, the Court has
averaged the experts’ square foot cost, using Mr. Gardner’s $60 per square foot cost and Mr.
Stropp’s $57.39 total replacement square foot costs (inclusive of his indirect costs and
entrepreneurial incentive) to arrive at $58.69 per square foot or $214,101. Averaging the total
depreciation, deterioration, and obsolescence (Mr. Gardner’s 62.5% and Mr. Stropp’s 48.70%),
the Court will use 56% for the depreciated replacement cost or $94,204. The depreciated
replacement cost of the building would be $119,897. When added to the value of the land, the
total value of the subject property using the cost approach would be $317,807.
Income Capitalization Approach
The Income Capitalization Approach according to the experts, determines the value of the
property based upon the income it is capable of producing. Discounting future income to
present value is the process of capitalization. This approach requires projecting income by
comparing similar rentals, estimating expenses, and then determining and applying an
appropriate capitalization rate. This approach was not heavily relied upon by the appraisers or
the Court.
Mr. Gardner reviewed three leases (Leases 1, 2, and 3) of commercial property on
Commercial Drive. Lease 3 is the same property Mr. Stropp labeled R-1 for his Income
Capitalization Analysis. Mr. Gardner did not provide much information regarding the
properties. A modification however, must be made for the stipulated square footage of the
building. Mr. Gardner determined that the range of rent per square foot was $8.42 for Lease 1 to
$9.25 for Lease 3. From the rental income he deducted 6% for vacancy and collection losses, he
also deducted for utilities, insurance, repairs, management and a reserve for replacement and
miscellaneous expenses. For the subject he found a $9 per square foot rental value, when
adjusted for the stipulated building square footage ($9 X 3,648) equates to $32,832 of potential
rental income. Reducing this by 6% for vacancies, collection losses ($1,969.92) and deducting
for other expenses, some of which also had to be also adjusted for square footage ($4,686.40)
leaves net operating income of $26,175.68. Using an 8.9% capitalization rate, he found the
property to be valued by this approach at $294,108.76.
Mr. Stropp used three leased properties on Commercial Drive, labeled R-1, R-2 and R-3.
R-1 was the same as Claimant’s Lease 3. R-2 and R-3 were new buildings, which Mr. Stropp
appropriately adjusted. He determined a square foot rental price range of $7.80 for R-1 to $9.75
for R-3. Based upon his analysis, the subject property had a rental value of $8.50 per square
foot or potential gross income of $31,008 ($8.50 X 3,648). From this he deducted 10% for
vacancy and collection losses, a 3% management fee, miscellaneous expenses, and an allowance
for replacements for total deductions of $5,350, resulting in net potential rental income of
$25,658. He applied a 10.25% capitalization rate to arrive at an estimated value using this
approach of $250,000.
After analyzing each expert’s valuation of the property, the Court finds the potential
rental income of the property, based upon the comparable leases, especially Lease 3/R-1, to be $9
per square foot or $32,832 potential rental income. The Court finds Mr. Gardner presented a
comprehensive reduction for expenses which the Court finds appropriate resulting in $26,175.68
of potential net income. To this, the Court has applied a 9.5% capitalization rate. In arriving at
this rate, the Court has given the most weight to the average capitalization rate as indicated by the
Real Estate Research Corp., and reflected in Mr. Stropp’s report. Accordingly, using the
Income Capitalization Approach, the Court finds the subject property’s value to be $275,533.47.
In reviewing the valuation of the property, based upon the experts’ respective analyses,
the Court finds after considering the three approaches, and giving more weight to the Sales
Comparison Approach, that the before value of the subject property is $289,000(R) or $79.22 per
square foot. The value of the land alone, as set forth above, is $9 per square foot or $197,910.
Site improvements were valued at $8,000.
AFTER VALUATIONS:
The State appropriated a strip of land 3 feet wide covering the property’s entire frontage
on Commercial Drive, and totaling 546 square feet of paved area with a sign with post. After
the appropriation 21,444 square feet is left totally landlocked.
The Court finds that the highest and best use of the subject property after the taking is
commercial use as vacant land. Since the appropriation left this property and all surrounding
properties with no legal access, it seems very unlikely that the existing building would have any
use to an assemblage buyer. Even Mr. Stropp testified that the property and surrounding
properties could be purchased for a “small plaza or something,”5 reflecting the fact that the
building no longer adds any value to this property.
Claimant’s expert used his pre-taking land-only value from the cost approach, at $11 per
square foot to calculate the direct damages from the property actually taken ($11 X 546 square
feet) at $6,000. The entire balance of the pre-taking value of the property he attributed to
consequential damages ($329,000) - finding the inaccessibility made the property valueless.
The State expert again used all three approaches to value the property after the
appropriation. The Court will only consider the Sales Comparison Approach for the land alone,
as the other approaches value the building and site improvements which the Court finds adds no
value to the inaccessible property post-appropriation. Mr. Stropp used the same comparables for
the “after” value as he did for the “before” land-only evaluations plus L-5. Again, the Court will
not consider L-1 because of the significant size difference. Mr. Stropp adjusted L-2 -100%,
L-3 -60%, and L-4 -80%, due to the subject property being landlocked. The -90% adjustment
made to each sale for frontage/access should be -100%. After modifying the adjustments as in
the “before” situation, L-2 remains at -100%,6 L-3 becomes -65% , and L-4 is -85%. As this
Court decided in Hage v State of New York, Claim No. 105406, the magnitude of the -100% and
the -85% adjustment reflect the lack of comparability to the subject property, so L-2 and L-4 will
not be used in determining the “after” value. The property, L-3, provides minimal guidance to
assess the value of this completely landlocked parcel. As modified, the value of L-3 is $1.77 per
square foot. Mr. Stropp also noted a recent post-valuation sale of a larger parcel that sold six
years after the subject appropriation but was similarly landlocked. This sale parcel adjoined a
parcel with access, and it was the owner of the accessible adjoining parcel who purchased the
landlocked lot to meet zoning requirements for expansion. This parcel sold for $1.10 per square
foot. Although the Court has reviewed this sale, given the difference in circumstances from the
subject and the post-valuation sale, the Court has not given it significant weight. Although the
subject parcel still has ample exposure on Commercial Drive which may make it appealing to an
assemblage buyer, its lack of access, the need for the cooperation of multiple owners, and an
interested buyer for multiple purchases, leads the Court to find a reduction in the square footage
value of the property to $.50 per square foot or $10,722 rounded to $11,000. Direct damages for
the property actually taken are $4,914 rounded to $5,000, plus $1,500 for site improvements (546
square feet of pavement and the sign). Consequential damages are $271,500.
Claimant is awarded $278,000, with statutory interest thereon from the vesting date of
April 1, 1999 until October 1, 1999. Statutory interest shall thereafter accrue from December
28, 2001, until the date of the Decision herein and thereafter until entry of judgment.
The award to Claimant herein is exclusive of the claim, if any, of persons other than the
owners of the appropriated property, their tenants, mortgagees, or lienors having any right or
interest in any stream, lake, drainage or irrigation ditch or channel, street, road, highway or public
or private right-of-way, or the bed thereof, within the limits of the appropriated property or
contiguous thereto, and is exclusive also of claims, if any, for the value of or damage to
easements and appurtenant facilities for the construction operation and maintenance of publicly
owned or public service electric, telephone, telegraph, pipe, water, sewer or railroad lines.
All motions not heretofore ruled upon are hereby DENIED.
To the extent that Claimant paid a filing fee in accordance with Court of Claims Act
§ 11-a(2), he is entitled to reimbursement.
LET JUDGMENT BE ENTERED ACCORDINGLY.
October 2, 2009
Syracuse, New York
HON. DIANE L. FITZPATRICK
Judge of the Court of Claims
I
Direct:
Indirect:
Total:
$
6,500(R)
$
271,500(R)
$
278,000
RECAPITULATION
Before Value
Land alone Whole value -
$9 per square foot
Direct Damages
After Taking
546 square feet actually taken
(546 X $9 = $4,914)
Paving & sign
$
289,000
$
6,500
$
5,000(R)
1,500
Value to remainder 21,444 square feet
(50 X 21,444 = $10,722
or $11,000(R)
$289,000 - $6,500 = $282,500
$282,500 - $11,000 = $271,500
Consequential Damages
$
271,500
Total Damages
$
278,000
1.The trial of these claims were joined; however, a Decision on Claim No. 105406 has already
been filed on March 25, 2009. This Decision addresses only Claim No. 105407.
2.There were three different dates of vesting for portions of the property; the parties stipulated to
April 1, 1999 for valuation purposes.
3.The Court has considered only Claimant’s appraisal of the “front parcel.” (Exhibit 1).
4.The Court notes that the fourth side of the computer generated polygon is only 123.7 feet while
the deed makes it 124 feet.
5. Trial Transcript, p. 215, lines 3-4.
6.The value cannot be reduced beyond 100%.