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CITY SCHOOL DISTRICT CITY WHITE PLAINS v. MABEL T. SMITH ET AL. (12/23/68)

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT 1968.NY.44051 <http://www.versuslaw.com>; 296 N.Y.S.2d 171; 31 A.D.2d 645 December 23, 1968 CITY SCHOOL DISTRICT OF THE CITY OF WHITE PLAINS, BY THE BOARD OF EDUCATION OF SAID CITY SCHOOL DISTRICT, APPELLANT,v.MABEL T. SMITH ET AL., RESPONDENTS Beldock, P. J., Christ, Rabin and Hopkins, JJ., concur in Memorandum; Benjamin, J., dissents and votes to modify the order so as to reduce the award and to delete the additional allowance, with an opinion.


Beldock, P. J., Christ, Rabin and Hopkins, JJ., concur in Memorandum; Benjamin, J., dissents and votes to modify the order so as to reduce the award and to delete the additional allowance, with an opinion.

Memorandum: This appeal is before us after Special Term confirmed the thorough report of three Commissioners of Appraisal involving a land and improvements parcel, condemned for school purposes. The experts for the contending parties, the Commissioners and the court at Special Term have all agreed that the value of the building and improvements is approximately $187,000. The point of difference between the experts has been the valuation of the land. There was a full trial with adequate cross-examination on this question; and the Commissioners not only examined the subject premises, which they were required to do, but also personally inspected the parcels submitted by the experts as comparable sales.

Within this framework, the Commissioners arrived at a total valuation for land and building of $345,000, roughly a sum which is the average of the high and low figures of the two experts. This valuation, subsequently confirmed by the court at Special Term, was arrived at in accord with established procedure and we find it to be a proper and a fair amount. It is not excessive. We may not disturb the valuation found under the circumstances of this case (Matter of Huie, 2 N.Y.2d 168).

Finally, we find no improvident exercise of discretion in Special Term's award of a statutory 5% additional allowance (Condemnation Law, ยง 16).

 Disposition

Order of the Supreme Court, Westchester County, dated October 30, 1967, which inter alia (1) confirmed a report of Commissioners of Appraisal, as corrected, fixing a condemnation award at $345,000, and (2) granted respondents an additional allowance of 5% upon the award. Order affirmed, with costs.

Benjamin, J. (dissenting).

In my opinion, the award in this case is grossly excessive.

The issues have been thoroughly and competently tried by both sides; and the record is adequate to enable this court to determine a fair award, different though it may be from that made by the Commissioners and confirmed by Special Term.

I am in full accord with the Commissioners' findings that the building in question is not a specialty; that the highest and best use of the property, including the land, is the use for which it was employed at the time of the taking; that the vacant land, in front and in back of the property, aggregating 36,000 square feet, should be considered as auxiliary to the building itself, since the front was required for loading purposes and the rear for off-street parking for employees; and that, under such circumstances, the proper way to value the property is by the capitalization method, not by the summation method. On this last point, it is plain that the summation method of appraisal, which determines value by adding the estimated fair value of the land to the depreciated reconstruction cost of the buildings, is inappropriate with respect to a nonspecialty, income-producing property like that at bar. For the purpose of total illumination, comparable sales may likewise be employed, but in the final analysis the award in this case must stand or fall upon the basis of a properly-applied formula of capitalization of net income.

A close scrutiny of the Commissioners' report discloses that, while professing adherence to the capitalization method, they paid only lip service to it and actually based their award of $345,000 (rounded out from their valuation of $343,000 [$186,000 for the building; and $157,000 for the land, at $2.70 per square foot]) on (a) testimony by the experts for both sides that the building was worth about $187,000 by the summation method and (b) testimony by defendants' expert that arbitrarily fixed the value of all the land at $4 a square foot, and testimony by plaintiff's expert that arbitrarily fixed the value of all the land at $2.05 a square foot. This departure from the capitalization method has resulted in an actual rate of capitalization so inordinately low as to be totally unrealistic and, therefore, untenable.

The record discloses the following:

The actual gross rental income from the entire property -- land and building -- was $31,000 at the time of the taking. The expenses, estimated in testimony of the experts and the owner, and accepted by the Commissioners, totaled about $8,000; about $7,300 of that sum was for taxes, about $400 was for repairs and about $350 was for insurance; no allowance was made for management expense, vacancies or occasional major exterior repairs. If we were to deduct $8,000 from the actual gross income, the actual net income would be $23,000; if we were to increase the expenses by attributing a fair amount to the omitted factors of management expense, vacancies and major repairs, the actual net income would probably be closer to $20,000 than $23,000.

Disregarding these facts, the Commissioners found that the fair rental value of the entire parcel was $36,000; they accepted the deflated $8,000 estimate for expenses as accurate; and they thus found the net rental value to be $28,000. In my opinion, this finding was unwarranted on the law and the facts. As Breitel, J., pointed out in Matter of City of New York (First Elephant Estates-La Hermosa Church) (17 A.D.2d 317, 322): "One looks to the actual rents as a reliable index to future rents (People ex rel. Gale v. Tax Comm., 17 A.D.2d 225, supra, and cases cited)." Apart from that, the finding of a fair rental value of $36,000 has very dubious support in the record. The proof shows that this building is a run-of-the-mill industrial building, almost 40 years old, age-weary and in need of substantial repairs and refurbishment; for such a building, the rent being paid at the time of the taking was actually the fair rental income.

Also erroneous, in my view, was the procedure used in capitalizing the net income. While there was mention of an overall capitalization rate of 7 1/2% by the claimant's expert, the record clearly shows that he, as well as the School District's expert and the Commissioners, actually used split capitalization rates. All of them fixed arbitrary values for the land, including the land under the building, and then applied a 6% capitalization rate to those arbitrary values; the claimant's expert then applied a 7 1/2% capitalization rate to the building, the School District's expert applied a 10% rate to it, and the Commissioners applied a 10% rate. That procedure resulted in a total valuation of $453,000 by claimant's expert, based upon his claim of a total net rental value of $31,600, which represents a return of about 7% on the land and building; this return included his estimate of about 3% per year for depreciation, so the true net return, on his figures, would be ...


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