The opinion of the court was delivered by: KENNEDY
Pursuant to a request made by the Administrator of Veterans Affairs, the government on July 1, 1947, filed a petition for the condemnation of 49,375 square feet of land (252 Seventh Avenue, N.Y.C.), owned by the defendant Tishman Realty & Construction Co., Inc. (hereinafter called Tishman). On July 9th, by order to show cause, the government sought immediate possession. By order dated July 25, 1947, possession was granted as of July 1, 1947. On July 28, 1947, a declaration of taking was filed and a deposit made of $ 3,000,000. On the same day a judgment was entered upon the declaration of taking. Title, therefore, vested in the government on July 28, 1947 (the date of the filing of the declaration and the deposit).
On September 2, 1947, an interlocutory judgment of condemnation was entered which, among other things, ordered that the court fix the just compensation due Tishman.
By order dated August 14, 1947, Tishman, out of the money on deposit ($ 3,000,000), received $ 754,870,38 as owner, and the mortgagee, Metropolitan Life, received from the same source $ 2,245,129.62.
This case was originally assigned to the late Judge Bright. Pursuant to stipulation (October 7, 1947) and order (October 13, 1947) the trial of the issue was held before me in the Eastern District on March 3, 4, 7, 8 and 9, 1949. On March 31, 1949, a view of the subject property, and also of the comparable properties, was taken by the court.
There are two questions presented, but each party states them differently because, although title passed on July 28th, possession was in the government from July 1, 1947.
The government claims that the two questions are:
(1) What was the fair market value of the subject property on July 1, 1947?
(2) What additional compensation must the government pay because of possession antedating the vesting of title?
The defendant says that the cause poses these two questions:
(1) What was the fair market value of the property on the date of the taking (July 28, 1947)?
(2) What was the fair rental value for the period between July 1, 1947 (possession granted government) and July 28, 1947 (when title passed)?
Now, on the fee question, the disagreement as to the controlling date seems quite immaterial, because there is no proof in the record that there was any substantial or material difference in the value of the property between July 1 and July 28, 1947.
The government, however, claims that the owner, under settled authority, is not, under the circumstances of the case, entitled to a rental award. It does, however, concede that the owner is entitled to interest at the rate of 6% per annum on the market value of the property, as established by the court, for the 27-day period.
The importance of the second controversy is clear when one considers that interest at the rate of 6% on a $ 5,000,000 valuation would amount to less than $ 25,000 ($ 15,000 if a $ 3,000,000 valuation is taken). On the rental theory, based on obtainable rents, the award would be, according to one of Tishman's witnesses, Joseph, About $ 90,241.76. The Tishman witness Goode placed the figure at $ 64,225.
I give now the facts concerning the property, deriving them in large part from a report placed in evidence (Def.Ex. 3) by claimant. The building in question covers the entire area of the property which is on the west side of Seventh Avenue between 24th and 25th Streets, having a depth of 250 feet for the entire width of the property. The improvement consists of three 16-story and two 11-story buildings which, although they form a single unit, were built at different times. The building was originally built for heavy manufacturing purposes. There is a cellar as well as a sub-cellar below the sidewalk level, and sidewalk vaults on all three street fronts which extend from the building line to the curb on the side streets and to the subway line of taking on Seventh Avenue. The buildings form a 'U' shape.
The first unit was built in 1905 and fronts on 24th Street. It is 11 stories high with a street frontage of 128 feet 6 1/2 inches with a depth of 87 feet. That unit is referred to as unit 'R'.
Unit 'S' was constructed in 1910. It lies directly to the east of 'R'. It is 11 stories high with a frontage of 43 feet 3 1/2 inches on West 24th Street and a frontage of 46 feet 6 inches on West 25th Street. This building is divided into two sections ('S-South' and 'S-North'). In 1914 'S-North' was extended an additional 5 stories.
At the same time (1914) Unit T and U were constructed. Unit T fronts 197 feet 6 inches on Seventh Avenue and 78 feet 3 inches on West 25th Street. It is 16 stories in height as is Unit U, which fronts 125 feet 3 inches on West 25th Street. It is 16 stories in height as is Unit U, which fronts 125 feet 3 inches on West 25th Street, having a depth of 70 feet 7 inches.
During 1942 the then owners, Metropolitan Life Insurance Company, completely renovated the buildings, installed new banks of express elevators installed modern toilets and wash rooms on all floors and constructed a new lobby on the Seventh Avenue front. The improvements made the building suitable for high class office, show room and loft purposes.
The building, as a whole, is steel skeleton type with steel stairs throughout. Toilet and wash rooms have tile floors and base and toilet stalls are of steel. The lobby on Seventh Avenue has a terrazzo floor, marble wainscote, marble floor to ceiling where elevator doors occur, hung ceiling with concealed lighting, and decorative wall finishes. The building is also equipped with a package chute, mail chute and rubbish chute. It is plastered and painted throughout. There is a complete steam heating plant. (At the time of the taking and since, steam was however being obtained from a public utility.) All sections of the building are equipped with sprinklers. There is light and power wiring throughout.
The building is equipped with 18 passenger and freight elevators now in active service, and 3 additional elevator shafts which can be used in the future.
History of the Subject Premises.
The original owner of the building was the National Cloak & Suit Company, which conducted a mail order business. A concern called National Bellas-Hess Co. took over the building, but in 1932 it surrendered the property to the Metropolitan Life Insurance Co., the mortgagee, in lieu of foreclosure. The building remained vacant until 1942 when it was adapted to the needs of the Veterans Administration at a cost of over $ 1,300,000 to the mortgagee. The government went into possession on February 20, 1942, under a lease at an annual rental of $ 320,000, or approximately 45 cents per square foot.
On October 10, 1045, Tishman, through a professional 'dummy', purchased the premises for $ 2,800,000. It says now that this purchase was made for long-term investment purposes. The preliminary discussion of the transaction occurred just after V-J Day, and although the property was taken subject to the lease, the latter contained a 60-day cancellation clause which, in claimant's opinion, the government would shortly invoke. During Tishman's ownership, and prior to the commencement of these proceedings, the government made certain improvements, but these do not enter into the case.
When Tishman took the property it was, of course, subject to the Emergency Rent Law, McKinney's Unconsolidated Laws, § 8521 Et seq., a fact of which Tishman was aware. Between October 1945 and June 1, 1947, Tishman accepted rent from the government under protest, and on July 1, 1947, it instituted an action in the New York Supreme Court in order to bring about a termination of the lease. It was, it will be remembered, on this date that the government filed its petition in this proceeding.
It may as well be noted at this point that between the years 1944 and 1948 the assessed value of the land on which the subject premises stand never changed from the figure of $ 615,000. The assessed value of the building, however, climbed from $ 1,285,000 (1943-1944) to the sum of $ 2,185,000 (1947-1948). It will be seen that in the year 1945 when Tishman purchased the property for $ 2,800,000 the assessed value (land and building) was $ 2,100,000; at the date of the taking in 1947 the assessed value (land and building) was precisely the same figure which Tishman had paid two years earlier. During the government's occupancy the building was, in point of fact, converted from a loft manufacturing building to an office building, and in this connection it became necessary to install air conditioning, partitions and other facilities to meet the requirements of the form of occupancy.
Experts for the government now say that the premises are worth from $ 2,750,000 to $ 3,000,000. The value placed upon the property by the claimant is $ 5,000,000, in addition to which it seeks, as has been said, an amount equal to the rental value less expenses for the period July 1 to July 28, 1947. Putting to one side the dispute over the subsidiary question of the value of occupancy for the short period prior to the passing of title, the striking feature of the case is the very wide discrepancy between the two estimates of fee value. That discrepancy is explained almost wholly by the fact ...