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December 21, 1962

UNITED STATES of America, Petitioner-Plaintiff,
CERTAIN INTERESTS IN PROPERTY Situate IN the BOROUGH OF BROOKLYN, COUNTY OF KINGS, STATE OF NEW YORK, and Dayton Development Fort Hamilton Corp., et al., Defendants

The opinion of the court was delivered by: BRUCHHAUSEN

The defendants-claimants move for a new trial.

The Government instituted this action to acquire title to leaseholds on apartment buildings erected on the Fort Hamilton Army Base in Brooklyn, New York.

 The trial of the action before the court and a jury endured for a period exceeding four weeks.

 At the time of the taking on December 15, 1960, the Government was the owner of the land and the buildings. The principal issue at the trial was the value of the leaseholds over and above the mortgages, assumed by the Government. The expiration date of the leaseholds was approximately sixty-five years from the taking date.

 The buildings were erected by the claimants, pursuant to the so-called Wherry Housing Act, 12 U.S.C. §§ 1748, 1748a. The purpose of the Act was to encourage private enterprise to construct rental housing to serve the needs of personnel at or near military installations and to provide housing at low rentals. The Act authorized the Federal Housing Administration to insure the mortgages up to 90% Of the estimated cost of construction, without regard to the risk, upon certification of the necessity by the military. The Government made the land available to the builders at nominal ground rentals. Rental income was predicated upon a return not exceeding 6 1/2% Of original cost of the structures. The permissible rentals including services were controlling in the determination of gross and net income as well as the approved schedule of allowable expenses and cost of management and operation. At such times as operating costs, including vacancy losses fluctuated or changed, it was the policy of the Government to increase or decrease the rental income, as the circumstances warranted. The lessees were not permitted to alter the rent schedule without Government consent.

 There was credible evidence that the total cost of the structures was considerably less than the total of the amounts received by the lessees on the mortgages, insured by the Government.

 The lessees were required to deposit moneys with the mortgagees for replacements, repairs and deferred maintenance. The sums so deposited totaling approximately $ 173,000 were returned to the lessees at or about the time of the taking. These funds were in a different category than were annual maintenance expenses.

 The Government exercised control of the projects through ownership of the preferred stock of the corporate lessees.

 The moving papers, in the main are repetitive of motions and objections, made at the trial.

 A point now urged is that 'the four verdicts rendered by the jury * * * were based on unsubstantial evidence as a matter of law * * *.' (Page 2 of the moving affidavit) It would appear that the claimants contend that the verdicts were against the weight of evidence. The parties' expert witnesses were examined and cross-examined at considerable length. It was the province of the jury to ascertain the truth. It should be borne in mind that the burden of proof as to the values of the leaseholds rested upon the claimants.

 One of the many factors which a purchaser would consider in negotiating for acquiring the property, as testified to by the experts, was the physical condition of the buildings. Credible evidence supported the Government's claim that the structures had not been well maintained. No reserve fund would be available to a purchaser to cure these conditions. Joseph Shlichta, the Government's expert, estimated the cost of deferred maintenance and replacements at $ 250,000, a more conservative estimate than that of Mr. Bingham, another expert for the Government. This item is unrelated to the annual deduction, as a part of operating expense, for replacement reserve, a mandatory deduction prescribed by the Federal Housing Administration rules and regulations.

 The appraisers for both parties based their valuations upon computations of the capitalization of income. They differed in respect to the capitalization rate, cost of repairs and replacement, estimated allowance for vacancies and operating expenses.

 Seven sales were introduced into evidence by the Government, not as direct proof of value but in aid of arriving at a just capitalization rate. All of them involved properties, financed by Government insured mortgages, under restrictions similar to those imposed on the subject buildings. Two of the sales involved properties in the immediate vicinity of the said buildings, two in the general area and three pertained to sales of Wherry Housing projects in other States. All of the local sales were evidenced by ...

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