N.J. TAX COURT

Clemente v. Township of South Hackensack

TAXATION

New Jersey Law Journal

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Clemente v. Township of South Hackensack, Nos. 011103-2009, 009342-2010, 000059-2011; Tax Court; opinion by Andresini, J.T.C.; decided and approved for publication July 3, 2013. DDS No. 35-5-0575 [18 pp.]

Donato Clemente owns a 0.82-acre lot in South Hackensack that is improved with a one-story masonry brick and steel frame building. The property is in the "C" industrial zone. It was assessed as follows: 2009, $1,468,400; 2010, $2,042,800; 2011, $2,042,800. The director's (Chapter 123) ratio for South Hackensack for each year under appeal was: 2009, 52.11 percent; 2010, 100 percent; and 2011, 92.86 percent.

Plaintiff filed timely direct appeals with the Tax Court, contesting the local property assessment on the property for 2009, 2010, and 2011. Defendant did not file counterclaims. Two witnesses appeared at trial: plaintiff's expert appraiser and a fact witness called by defendant.

Plaintiff's expert's report focused on the income approach because of his characterization of the property as "light industrial" and, as such, an investment-type property. He testified that portions of the building were vacant as of the date of his inspection and, therefore, vacant during the valuation dates at issue. He also testified that the front portion of the building is set up as a public outlet for retail sale of goods, some of which are made on the premises. He characterized this public retail outlet and the square footage is allotted to office space as "ancillary."

He did not visit the municipal building department to review any documents pertaining to the property. Thus, he was unaware, until the trial, of a 2001 board of adjustment resolution permitting expansion of the pre-existing nonconforming retail operation, an application for a use permit indicating the property would continue to be used as a retail store/Clemente Bakery and wholesale manufacturing bakery/Central Bakery, and a use permit.

Using five comparable leases, plaintiff's expert calculated industrial, economic rental value. All of the comparables were one-story masonry industrial building leases. He concluded the true market value of the property to be $1,105,00 as of Oct. 1, 2008, $1,020,000 as of Oct. 1, 2009, and $970,000 as of Oct. 1, 2010.

Defendant's witness did not offer an opinion of value because he was testifying as a fact witness. He testified that at all times relevant to valuation, the property was used as an integrated retail and bakery facility, and that in 2001 approvals were granted for expansion of the retail portion of the building to include restaurant seating. Defendant rested on the correctness of the assessment.

Held: Plaintiff's expert's failure to acknowledge the actual use of the property as an integrated bakery facility, including the variance for the retail and restaurant use, and his failure to give any weight to the zoning approval for expansion of the retail component rendered his determination of the property's highest and best use faulty. The comparable leases he chose are given no weight because they were selected in the absence of a proper highest and best use analysis. The assessments are affirmed.

The court's analysis begins with the well-established principle that original assessments and judgments of county boards of taxation are entitled to a presumption of validity. To overcome the presumption, the evidence must be sufficient to determine the value of the property under appeal, thereby establishing the existence of a debatable question as to the correctness of the assessment.

The Tax Court found that plaintiff produced sufficient evidence to overcome the presumption of validity, permitting it to consider what value should be accorded to the property.

It then says that for property tax assessment purposes, property must be valued at its highest and best use. Accordingly, the first step in the valuation process is to determine the property's highest and best use. This requires sequential consideration of whether the use of the property is (1) legally permissible; (2) physically possible; (3) financially feasible; and (4) maximally productive. Implicit in this analysis is the assumption that the proposed use is market-driven. A highest and best use determination is not based on value-in-use because the determination is a function of property use and not a function of a particular owner's use or subjective judgment as to how a property should be used.

The proper determination of highest and best use requires a comprehensive market analysis to ascertain the supply and demand characteristics of alternative uses. Here, plaintiff's expert failed to acknowledge the actual use of the property as an integrated bakery facility, including the variance for the retail and restaurant use. He failed to give any weight to the zoning approval for expansion of the retail component. His failure to consider the approval and permit in his determination of highest and best use means that he did not include and value all of the interests in the property.

The board of adjustment resolution states that the Clemente Bakery Corporation is permitted to use 840 square feet of the existing building for nonwaiter-waitress sit-down eating of foods prepared and available on the premises. This characterization of the property is quite different than plaintiff's expert's highest and best use conclusion of light manufacturing and warehouse. Therefore, the court finds that his conclusion of highest and best use is faulty and will not accept it.

The court then says plaintiff's expert's income approach is guided by the conclusion of the highest and best use, which this court found to be without merit. All of his comparables were one-story masonry industrial building leases, but none had any retail component.

The comparable leases chosen by plaintiff's expert are given no weight because they were selected in the absence of a proper highest and best use analysis. Consequentially, the rental value component of the income approach by plaintiff's expert is faulty. His use of comparable leases to determine market rent neither allows the court to draw rational probative valuation inferences nor lends logical, coherent support to an opinion of value. Therefore, his entire income approach is inapplicable as a matter of law.

Thus, the court concludes that plaintiff has failed to sustain the requisite burden of proof necessary to alter the challenged assessments.

For plaintiff — Richard B. Nashel (Nashel & Nashel). For defendant — Steven D. Muhlstock (Gittleman, Muhlstock & Chewcaskie).

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