Chili Hinchey Plaza Partnership v State of New York

[*1] Chili Hinchey Plaza Partnership v State of New York 2006 NY Slip Op 52634(U) [21 Misc 3d 1114(A)] Decided on February 17, 2006 Ct Cl Patti, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on February 17, 2006
Ct Cl

Chili Hinchey Plaza Partnership, by Daniel R. Bickel, Receiver, Claimant,

against

The State of New York, Defendant.



105549



APPEARANCES:

For Claimant:

FORSYTH, HOWE, O'DWYER, KALB & MURPHY, P.C.

BY: DUNCAN W. O'DWYER, ESQ., and

ROBERT J. KALB, ESQ., on the Brief

For Defendant:

HON. ELIOT SPITZER

Attorney General of the State of New York

BY: REYNOLDS E. HAHN, ESQ.

Assistant Attorney General

Philip J. Patti, J.

This is a timely filed claim [FN1] for the taking of 8,134ñ square feet (sq. ft.) of frontage owned by Claimant, Chili Hinchey Plaza Partnership, by Daniel R. Bickel, Receiver, located at 1295 Chili Avenue in the Town of Gates, Monroe County, in a project identified as "Chili Road, Pt 1, SH No. 254" and, as set forth in Map No. 227, Parcel No. 232, also included several improvements. The improvements involved the removal of 8,134ñ sq. ft. of asphalt in fair to poor condition, 18 lined parking spaces, 100ñ linear feet of steel guardrail and a double-sided identification sign.[FN2] The Notice [*2]of Appropriation and map as it affected Claimant's property were filed in the office of the Monroe County Clerk on November 6, 1998, the agreed upon date of vesting. The Court has viewed the property (Court of Claims Act § 12[4]).

Claimant took title to this property by deed dated July 7, 1983 and recorded August 29, 1983 in the Monroe County Clerk's Office in Liber 6376 at Page 248 (Exhibit 1). There appears to be no dispute by either party as to this date.

The subject property was located on and abuts the south side of Chili Avenue and consisted of 5.981ñ acres and was appropriately zoned General Business (GB) and was served by all public utilities. It was improved with a 68,428 ñ sq. ft. multi-level structure erected in 1949-1950 and at the time of the appropriation was described as being in fair to poor condition reflecting "significant deferred maintenance" (Exhibit 2, pg. 23). The upper level had 26,397ñ sq. ft. of gross building area at road grade, while the lower level of 42,031ñ sq. ft.[FN3] was below grade and had a rear exposure at parking lot grade. The total rentable area was 67,822ñ sq. ft., with 26,335ñ sq. ft. on the upper level and 41,487ñ sq. ft. on the lower level. At the time of the taking there were 90,000ñ sq. ft. of asphalt paving in fair to poor condition with parking for 112ñ cars in front and an area to the rear for open parking.

As a result of the taking, Claimant lost a strip of area along the front approximately 431 feet in length and varying between 12 feet to 19 feet in width. Some 8,134ñ sq. ft. of asphalt were removed, resulting in the loss of 18ñ paved/lined parking places. Also removed were 100ñ linear feet of guardrail and a double-sided plaza identification sign. No building improvements were located in the area of the taking. The alleged effect of the taking centered upon the loss of the 18ñ parking places which, since they were located at the front of the buildings, impacted the convenience of customers using the plaza, since they would now be required to park at the rear of the plaza and walk around to the front to access the stores located there. According to Claimant's expert, the loss of what he described as prime parking spaces diminished the available parking area by 16% for shoppers wishing to use the upper (front) retail establishments. He also noted that the zoning in effect for the property at the time of acquisition required six spaces per 1,000 sq. ft. and, in the case of the subject property, that would have required 158 spaces based on the applicable square footage. Consequently, he opined that the taking had a further negative impact on the subject's value as a consequence of the appropriation. However, the subject property still was compliant with the town zoning requirements, since there was ample area to the rear that could be utilized for parking (Exhibit 2, pg. 3). While Claimant's expert states that "[s]everal tenants vacated space at the subject as a direct result of the inadequate parking (see addenda)" (Exhibit 2, pg. 3), the addenda contains but a single letter, dated January 4, 1999 from Teacher's World (Exhibit 2, A-15), to support that assertion.

Claimant's expert concluded that the highest and best use of the subject property prior to the appropriation was "as developed." However, after the Defendant's acquisition of the various improvements and that area containing the 18 parking spaces, the highest and best use changed in [*3]his opinion to "a transitional use until such time that the property would either be demolished and redeveloped or completely renovated" (Transcript, pp. 32-33). He opined that this may not occur for several more years and that in the meantime the property would continue to deteriorate due to the loss of parking, resulting in the further loss of tenants because of the loss of adequate parking and reduction of the income stream.

In arriving at the subject's value, Claimant's expert did not consider the cost approach and performed a market data or sales approach in arriving at a land value as improved, as well as vacant. He stated, however, that the income approach was the preferred methodology by which to determine the subject's worth. The market data approach was not relied upon since he concluded that properties such as Claimant's are purchased based upon their income potential and strength, and comparable sales would be difficult to find, since there were not similar properties available which exhibited that income stream and investment quality comparable to the subject, given its age, vacancy rate and lack of sufficient parking to the front.

Claimant's appraiser utilizes the sales comparison approach, however, to fix the subject's land value to be incorporated in his income approach (Transcript, pp. 33-34). After utilizing the sales comparison approach, he set the value for the subject at $300,000.00 per acre.

In his analysis of the subject's value using the income approach, he fixed the subject's before value to be $1,335,000.00, utilizing the actual rents and the direct capitalization method. He buttressed that by implementing a discounted cash flow methodology over a five-year period and arrived at a before value of $1,270,000.00. He then reconciled these valuations to set the before value at $1,300,000.00. To fix his after taking value, Claimant's appraiser limited his analysis to the discounted cash flow using a higher capitalization rate to reflect that greater risk of ownership and the effect the appropriation had on the subject property. This resulted in the subject being valued at $840,000.00, and a loss of $460,000.00 which the appraiser broke down as follows:

Direct Damages:$65,000.00 (land and improvements)

Indirect Damages:$395,000.00

The State's cross-examination of this expert established that the subject's value of $1,794,000.00, as found by his use of the whole-to-whole market data approach, was significantly higher than the value he found using the income approach. The appraiser acknowledged that a prudent owner would be reluctant to invest the amount of money necessary to make needed improvements to the existing structures since the improvements would outlast the useful life of the improvements presently existing and therefore the structure would have to be demolished. He set the cost of demolition at $342,000.00 (Exhibit 2, pg. 41), which, according to my calculations, results in a value of $1,452,000.00 prior to the taking. The State then questioned the expert's income analysis which, using the capitalization and/or discount rate as set by him, set the subject's value at less than that as found using the market data approach. In fact, Claimant's expert conceded at one point under cross-examination that the income approach demonstrated that the property was breaking even and not generating a return on equity for the owners (Transcript, pp. 74-77).

Claimant rested without further proof and the Defendant moved to strike the income analysis from Claimant's appraisal as well as the trial testimony in support of the same, since the whole-to-whole market data approach clearly showed the property had greater value as vacant land than as improved. Thus the improvements were in fact a detriment to the property, did not lend any real contributory value to the property and would have to be demolished by any prudent investor. [*4]I reserved decision on the motion and the Defendant then rested without putting before me any testimony from an expert regarding the subject's highest and best use before or after the taking or the value of the subject property.

The conundrum posited before me is obvious. On this record it is clear that Claimant's expert found the subject and its improvements to be in fair to poor condition due to significant deferred maintenance. I find that means the owners chose not to make any significant improvements which could attract new tenants. This attitude is supported by the owner's failure to redevelop the area of the burned-out bowling area over the 15 years it owned the property prior to the Defendant's acquisition of frontage. In my opinion, this failure to maintain the property is as compelling a reason for the rate of vacancies as the alleged loss of parking spaces.

Since there is no proof before me relating to the subject's highest and best use other than Claimant's, I find it to be commercial subject to future redevelopment. However, while at the time of acquisition it was generating income, it is obvious on this record that it was decreasing and would soon fail to break even. This inevitably would result in further declination of the condition of the improvements and their contributing value to the subject.

It is a well-established principle that in ascertaining the highest and best use of the subject, an appraiser consider whether the improvements existent on a parcel contribute to its value. If not, then in the analysis of value of a property, it is appropriate to not consider their presence and value and to fix a value of the property as vacant land (The Appraisal of Real Estate, The Appraisal Institute, 12th ed., pp. 305-311). Thus, a proper analysis would be to establish the value of the subject on a whole-to-whole comparable market data approach and factor out of that determination the cost of demolition, which Claimant did. Consequently, I have given no weight to that portion of Claimant's appraisal, or its expert's testimony, which relies on the income approach to value (Van Kleeck v State of New York, 18 NY2d 897; Acme Theatres v State of New York, 26 NY2d 385).

Further, since I find that the improvements do not have any contributory value to the subject, it follows that there is no consequential or indirect damage to the subject, and I so find.

The remaining issue before me then is to determine a value for the subject property based on the Claimant's market data approach. Claimant's expert offered four sales, each of comparable size, with Sale Nos. 1, 3 and 4 located in areas of differing commercial growth. Sale No. 2 is located in the City of Rochester and was zoned low density residential, and I have not considered that sale in my calculations or any discussion below. I considered that Claimant's expert added the demolition costs to the sale prices of Sale Nos. 1 and 3, and accept that amount as accurate. I find that the only location adjustment would be to Sale No. 3 and cannot agree that its location is superior to the degree as fixed by Claimant's expert, resulting in a negative 15% adjustment. I accept the determination that no adjustment is required for zoning. I find that some of the adjustments made for topographical variations are too severe. Sale No. 1 should be readjusted to reflect a 10% negative adjustment in order to bring the subject into parity with it. I make no change to the appraiser's adjustment for topography as it pertains to Sale No. 3. However, Sale No. 4 should have an upward adjustment of 10% to reflect the subject's superior topographical composition. Finally I find that Sale Nos. 1 and 3 each require an upward adjustment for time to accurately reflect the market dynamics which demonstrate the fact that properties in the area of these sales, as well as the subject property, were appreciating. Therefore, I have made upward adjustments of 5% to Sale No. 1 and 10% to Sale No. 3. [*5]

I find that with these adjustments the per acre value of the subject ranges from a low of $333,600.00 rounded (R) to a high of $363,000.00 (R). After due consideration, I find the per acre value to be $345,750.00.

I find the before value of the subject property to be $2,068,000.00 (R) (5.981 acres x $345,750.00) and its value after the taking to be $2,003,000.00 (R) (5.794 acres x $345,750.00) for a difference of $65,000.00. I accept as accurate the Claimant's determination for the loss of paving, guardrail and sign of $9,000.00. I find Claimant's total damages for land and improvements taken to be $ 74,000.00, as follows:

Thus, Claimant is awarded the sum of $74,000.00, with appropriate interest thereon from November 6, 1998, the date of taking, until May 6, 1999, six months subsequent to the date of taking, and from February 1, 2002, the date of filing of the original claim [FN4], to the date of this decision, and thereafter to the date of entry of judgment herein, pursuant to CPLR 5001 and CPLR 5002; EDPL §514; Court of Claims Act §19(1); and subject to Court of Claims Act §19(4).

The award to Claimant herein is exclusive of the claims, if any, of persons other than the owner of the appropriated property, its tenants, mortgagees or lienors having any right or interest in any stream, lake, drainage, 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 or appurtenant facilities for the construction, operation or maintenance of publicly owned or public service electric, telephone, telegraph, pipe, water, sewer or railroad lines.

All motions not heretofore ruled upon are now denied. To the extent that Claimant has paid a filing fee, it may be recovered pursuant to Court of Claims Act §11-a(2).

LET JUDGMENT BE ENTERED ACCORDINGLY.

Rochester, New York

February 17, 2006

PHILIP J. PATTI

Judge of the Court of Claims Footnotes

Footnote 1:The original claim herein was served and filed on or about February 2, 2002. As asserted in a "so ordered" stipulation of the parties filed on February 26, 2002, the original claim was sealed. The amended claim, revised to eliminate any reference to the advanced payment agreement, was filed on February 13, 2002. The parties further stipulated that the claim herein was timely filed.

Footnote 2:This data and the information relating to the dates of filing of the Notice of Appropriation were taken from Claimant's appraisal (Exhibit 2) as the Defendant chose not to introduce its appraisal and there appeared to be no dispute as to these items.

Footnote 3:Claimant's testimony reads 43,031 sq. ft.(Transcript, pg. 21), but I have adopted the measurement in his appraisal of 42,031 sq. ft. (Exhibit 2, pg. 3).

Footnote 4:While the "so ordered" stipulation (see Footnote 1), recited an original filing date on or about February 2, 2002, the parties stipulated on the record that the claim was filed on February 1, 2002 (Transcript, pp. 91-92), a date which I adopt for purposes of the calculation of interest.