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April 3, 1979

DWORMAN BUILDING CORPORATION, L. J. D. Enterprises, Inc. and V. Dworman Company of New Jersey, Plaintiffs,
GENERAL SERVICES ADMINISTRATION and Gerald J. Turetsky, Defendants

The opinion of the court was delivered by: BRIEANT


Plaintiffs are affiliates and are the owners of the so-called ECOM office building in New Shrewsbury, New Jersey. Defendants are the governmental agency (hereinafter "GSA") and administrator acting for the government unit holding possession of a portion of the ECOM building under a long term lease.

 This action was filed in this Court on June 26, 1978. The Court has subject matter jurisdiction under 5 U.S.C. § 552(a)(4)(B) (FOIA) and 28 U.S.C. § 1361. Motions for summary judgment made by both sides having been denied, the action was tried before the Court without a jury on February 16, 1979. Post-trial memoranda and submissions of the parties have been received and considered.

 In accordance with its customary procedures before entering into a lease of privately owned property to be occupied as an office building by the federal government, the GSA caused a "Preliminary Appraisal" to be prepared and completed on July 28, 1971 by Mr. James McCabe, a GSA staff appraiser. The plaintiffs proposed to construct a new office building for the partial use and occupancy of the United States Army Electronics Command, known as ECOM. At the time the appraisal was prepared, no lease existed between the parties, and construction of the building had not begun. Accordingly, the appraisal was based on the plans and specifications of the proposed building. In accordance with usual GSA leasing procedures, the appraisal of 44 pages, exclusive of four attached exhibits, contained the author's estimate of the fair market and fair rental value, setting forth in detail the rationale by which these figures had been computed.

 Plaintiffs have requested the lease under FOIA, and have been furnished a redacted copy, which eliminates all the land and building valuation data and excludes the reference to the particular method of valuation or value approach being used by the appraiser. The items withheld or redacted from the copy of the appraisal which has been given to plaintiffs are as set forth in detail in paragraph 7 of the Affidavit of Richard H. Gaskins, sworn to December 8, 1978, except for item "c" thereunder, which was subsequently disclosed, as appears from a letter dated February 14, 1979 from the United States Attorney in this District, which has been filed in the action. Each of the figures or items withheld is either (i) an element which the appraiser weighed in arriving at his appraised value of the project when completed, or (ii) an adjustment factor which the appraiser developed and applied to his value estimates in order to arrive at an estimate of a related cost. While the appraiser's selection of relevant elements, and his adoption of each adjustment factor reflects his personal expert judgment or opinion, it is entirely possible that he may have considered in reaching his judgment consultations he may have had with staff employees of the GSA. Any such information so derived, of course, has not been requested, and is not denoted in the appraisal. The appraiser evaluated comparable parcels, making adjustments for location, size and transaction date to furnish a predicate for his market value estimates.

 This appraisal, which the Court has examined In camera, is nothing more than the effort of an expert to apply market concepts to a specific parcel of land upon which a proposed building was to be erected at then current (1971) costs. In creating it, McCabe drew upon expert but generally available knowledge of real estate market conditions in the community. According to appraisal theory, any qualified appraiser could have appraised the property, and if the same approach to value were followed, and the same adjusted comparable sales or rentals were used, and the same capitalization rates and operating cost estimates were applied, then the resultant values appraised by two or more such experts should be substantially identical. Our experience with appraisers in litigation is often to the contrary: one party's appraiser will often value a given parcel at a substantially different amount of money than the adverse party's appraiser. This is a matter dependent upon the credibility or bias of the appraisers and does not reflect adversely upon the recognized theory by which a valid appraisal of real estate is made. In theory at least, an appraisal of sale or rental value of specified land and building is no different than appraisal of a specific used car, or the contents of merchandise within a warehouse, or used manufacturing equipment. It is more factual than theoretical, and has no element of secret strategy within it. Assuming this appraisal was honestly prepared, any other qualified appraiser's work should be, in appraiser's argot, "in the same ballpark."

 To call the document a "preliminary" appraisal is, in a sense, confusing. This nomenclature connotes only that the appraisal was made prior in time to the actual construction, which, in turn, did not commence until after the lease was signed. So long as the final construction conforms substantially to the plans and specifications for an appraised proposed building, GSA does not require a reappraisal after construction, or "final" appraisal. No reappraisal or "final" appraisal was required for this building.

 After the preliminary appraisal, the parties negotiated the lease, at arms length. Since construction was completed, the Government has been paying a negotiated rent under the lease. The appraisal has never been revealed to plaintiffs, but in bargaining with plaintiffs at arms length to effectuate the lease, it was unlawful for GSA to exceed the appraised rental value. It could bargain to pay less.

 The lease comprises approximately 535,000 net usable square feet of space at an annual rental of $ 2,851,550. Although executed on August 27, 1971, it commenced March 2, 1974, and has a term of 20 years with four 5 year options to renew.

 Under the lease the landlord pays the taxes and is responsible for providing certain operating services, such as cleaning, maintenance and electricity. After the first 5 year period, historic increases in those costs are shifted in part to the Government pursuant to a tax escalation clause and an operating costs escalation clause. These items thereafter are to be re-adjusted at 5 year intervals. The method for adjusting the operating costs at the 5 year intervals calls for lessor to submit its experience data. In the absence of agreement on an escalation adjustment, the GSA may provide the operating services itself, and "deduct from the annual rental an amount based on the actual cost to the lessor of the operating services during the immediate preceding period."

 The first 5 year period under the lease ended in March 1979. Negotiations under the escalation clauses, if not already started, should begin shortly. In addition, a dispute concerning contract claims arising out of the construction and occupancy of the building remains unresolved.

 The withheld appraisal is typical of the usual real estate appraisal furnished by skilled experts in the art of valuing real estate following one or more of the various generally accepted methods of appraisal.

 Defendants decline to disclose the entire appraisal, relying on Exemption 5 of the FOIA, 5 U.S.C. § 552(b)(5). They contend that there is a "possibility" that these estimates of value and cost in the preliminary appraisal could be put to use in future dealings by the GSA concerning the ECOM office building. This suggests that knowledge of this 1971 appraisal would place the Government at a competitive disadvantage in "future negotiations with plaintiffs." Defendants also suggest that there is a "possibility" that negotiations for additional space in the ECOM building might take place, or that the Government "might" purchase the building at some future time.

 The Government suggests dire consequences if these estimates by the appraiser made by him in 1971 of the values and costs of a building, not then constructed, should now be disclosed. Defendants urge that disclosure of the estimates would impair "negotiations over future rental increases" and that there would be such a "shift in the focus of negotiations" ...

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