HARTZ MOUNTAIN ASSOCIATES, et al. v. TOWNSHIP OF CRANFORD

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1498-04T11498-04T1

HARTZ MOUNTAIN ASSOCIATES,

HARTZ CRANFORD CONDUIT L.P.,

HARTZ CRANFORD CREDIT L.P.,

H-CRANFORD CREDIT L.P., and

H-CRANFORD CONDUIT L.P.,

Plaintiffs-Appellants/

Cross-Respondents,

v.

TOWNSHIP OF CRANFORD,

Defendant-Respondent/

Cross-Appellant.

 
________________________________________________

Argued September 13, 2006 - Decided March 8, 2007

Before Judges Stern, A. A. Rodr guez and

Baxter.

On appeal from a final judgment of the

New Jersey Tax Court, Docket No. 2618-95.

David J. Hughes argued the cause for

appellants/cross-respondents (Horowitz,

Rubino & Patton, attorneys; Mr. Hughes,

on the brief).

Richard M. Conley argued the cause for

respondent/cross-appellant (Conley &

Sozansky, attorneys; Mr. Conley, of counsel

and on the brief).

PER CURIAM

Plaintiffs, Hartz Mountain Associates and related partnerships, appeal from judgments entered on July 16, 2004, as amended on November 5, 2004, affirming assessments on seven condominium units at 750 Walnut Street, Cranford for the tax years 1995-1999. The November 5, 2004 amended judgments revise the assessment for unit 6 for the years 1997-1999 but adhere to the July 16 judgments "in all other respects."

Plaintiffs assert that "the court failed to utilize the actual rents received for the subject property as specified in its ruling that [Parkway Village v. Township of Cranford, 108 N.J. 266 (1987)] mandated their inclusion in the case at bar" and "the defendant's and Tax Court's use of average rents for the extended length indicated was inappropriate and should be limited to the years under appeal or a reasonable time period."

By cross-appeal, the Township challenges the amended judgment regarding unit 6 "because when [the Tax Court] made its decision [it] had no transcript, [and the transcript] now shows that [the Township's appraiser, Charles] Femminella did not make a valuation mistake."

Approximately 75% of the 420,019 square feet of the commercial space on a 30.799 acre parcel is used for offices (including laboratories), and 25% is used for warehouse space. The property was valued using different techniques by plaintiffs' expert and defendant's expert.

According to plaintiffs' expert, William Stack, this utilization represents the property's "highest and best use." Stack valued each unit separately for each year based on the rent for that period. Stack considered the rent to be above market and determined valuation by considering "comparable" properties and then using an "income" or "economic approach" to valuation and formulating a capitalization rate. As a result, Stack determined value for each tax year.

Defendant's expert, Charles Femminella, based his evaluation on rental value over the years and concluded that the property was "in transition" from industrial space to office space. He compared the condominiums with other rental properties that had been converted from industrial to office space and then valued each condominium unit separately. In sum, he used the "income approach" to valuation and found office utilization to be the highest and best use.

After hearing the testimony, Judge Joseph C. Small rendered a comprehensive oral opinion on January 8, 2004. He specifically found that the Township's expert was more credible than the expert produced by plaintiffs. According to the judge:

In light of defendant's expert's ability to find comparable renters in the neighborhood of the subject with rents similar to the subject rents, I find the assertion that Summit was forced to pay above market rents both unsupported by facts in the record and lacking credibility. If anything, one would expect a dominant tenant, a sophisticated bank, to pay market or below market rent. The plaintiff's expert's conclusion brings into question his choice of comparables and the substantial downward adjustments he made to them.

I further find that the leases that plaintiff's expert used as comparables were significantly different from the subject because they were, A, gross and not net leases; because they were for significantly smaller spaces, as little as 345 square feet, while the smallest subject lease was over 20,000 square feet; because in choosing comparables from the Mack-Cali complex, plaintiff's expert consistently picked those leases with the lowest rents per square foot in each of those buildings; and because plaintiff's expert had to make adjustments that were so substantial as to destroy the concept that his choices were, indeed, comparable to the subject. Thus, I find plaintiff's expert's opinion as to the market rents unsupported by substantial credible evidence in the record. That being said, I find the best evidence in the record as to the potential gross income of the subject, or the rents, to be the conclusions of defendant's expert's of the modified and adjusted rates at the subject.

I note that plaintiff's -- that defendant's expert reviewed and submitted to the Court numerous documents in connection with leases at the subject and in connection with the conversion of the subject to condominiums, and that his conclusions as to both rates of rent and values are consistent with those submissions.

The judge then considered the components of the "income" approach: "vacancy and rent loss, other operating expenses, and capitalization rate." Thereafter, he considered the impact of the "excess land" available for construction, and concluded:

I generally found defendant's expert's testimony to be more precise than plaintiff's in this -- in his examination of the market and attempt to determine precise values for each year. I'm inclined to adopt his conclusions. However, they must be tempered with the overriding understanding that the income method is an attempt to estimate long-term value of a property based on a snapshot of a single moment in time. And the Court has before it several years for consideration. It defies logic to conclude radical changes in either the total value or the factual components used to calculate that value.

The judge also adjusted interest rates and allocated excess land value to each of the units. He then presented the parties with spreadsheets containing his calculations for each of the units for each year in question and invited the parties' comments. The judge thereafter adhered to his calculations, maintaining "the same relative assessments of land to improvements" in tabulating allocations for changed or increased assessments.

As we understand their argument, plaintiffs do not object "to the non-utilization of their expert's values by the Tax Court . . . or [the court's] analysis of the credibility of any witnesses who testified at trial." Rather, plaintiffs' argument is based essentially on the fact that, having rejected their expert's approach and relied on Parkway Village, supra, 108 N.J. 266, "the Tax Court failed to utilize the actual rents for the subject property for the years under appeal" as the basis for valuation.

Tax Court findings are entitled to special deference because of the expertise of Tax Court judges in valuing property, and the judges' findings cannot be disturbed unless plainly arbitrary or lacking in substantially supporting evidence. Glenpointe Associates v. Township of Teaneck, 241 N.J. Super. 37, 46 (App. Div.), certif. denied, 121 N.J. 391 (1990). See also Ford Motor Co. v. Township of Edison, 127 N.J. 290, 311 (1992); Glen Wall Associates v. Township of Wall, 99 N.J. 265, 280 (1985). Judge Small detailed reasons for accepting the methodology of the Township's expert, and we affirm the judgment substantially for the reasons given in his oral opinion of January 8, 2004. We add only the following.

We cannot conclude that the Parkway Village "presumption" related to utilization of actual rent each tax year for well managed buildings is dispositive or that the use of rent averages over the leasehold periods could not be considered. The trier of fact was entitled to decide the basis for valuation after consideration of the testimony of the experts and evaluation of their credibility. Judge Small could legitimately reject Stack's comparables and his approach and accept Femminella's income approach which included average rentals due to fluctuating market conditions. The judge agreed with the Township's "long term value" based on "a multi-year analysis."

Unlike Parkway Village, here we have long-term leases and the length of each is relevant. See Parkway Village, supra, 108 N.J. at 276; see also American Cyanamid v. Wayne Township, 17 N.J. Tax 542 (1998)(dealing with one tax year only, not multiple years). Moreover, plaintiffs' primary challenge to the judgment is not an objection to the credibility of the Township's appraiser or his assessments; it is essentially based on the court's rejection of actual annual rents as the basis for each year's valuation, despite the changing nature of the tenancies.

On the motion for reconsideration, the judge recognized that the rent for unit 6 for the last three years was $4.25 per square foot, not $6.00 per square foot, and he made an adjustment for 1997-99. Unit 6 comprised 40,088 square feet and was occupied under a five-year lease. Femminella's testimony acknowledged his report contained an error, improperly using a $6.00 per square foot calculation for unit 6 for 1997-1999. Femminella claimed the error was typographical, explaining that he "meant the four and a quarter, and somehow or another the numbers didn't get changed[,]" although his evaluation based thereon was correct.

Although the judge did not have the transcript of Femminella's testimony when granting reconsideration as to unit 6 based on the 1996 assessment, we have reviewed the transcript and fail to understand why the correction was not appropriate.

The judgments are affirmed.

 

Theodore J. Lamicella, an appraiser, testified for defendant and questioned the application of Stack's "comparable" properties.

(continued)

(continued)

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A-1498-04T1

March 8, 2007