N.J. TAX COURT

90 Riverdale, L.L.C. v. Borough of Riverdale

TAXATION

New Jersey Law Journal

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90 Riverdale, L.L.C. v. Borough of Riverdale, No. 004614-2009; Tax Court; opinion by Bianco, J.T.C.; decided July 30, 2013; approved for publication September 16. 2013. DDS No. 35-5-1493 [18 pp.]

Plaintiff, 90 Riverdale, L.L.C., challenges the 2009, 2010 and 2011 property tax assessments of its property located within the defendant municipality, borough of Riverdale (subject property).

The subject property consists of 4.73 acres, improved by a two-story, light industrial warehouse/office building consisting of approximately 60,000 square feet. The subject property is zoned I-1 (Industrial Park), which permits both industrial and office uses. The building contains slightly more than 50 percent office space and just less than 50 percent unfinished industrial space. The unfinished industrial space ceiling height is approximately 12 feet.

Both parties offered the testimony of professional real estate appraisers; each expert prepared an appraisal report. Both experts agreed that the current industrial/office use of the subject property should continue.

However, 90 Riverdale's expert concluded that the 18,880-square-foot "obsolete second [office] level" should be demolished, which would reduce the overall office area from about 51 percent to just under 30 percent of the existing structure on the subject property. By removing the second level, the ceiling height of the unfinished industrial area would be increased from its substandard height of 10 to 12 feet, to approximately 24 feet. The expert opined the approximate cost of the demolition to be $500,000.

Although the borough's expert also concluded that the current industrial/office uses should continue, he determined that the subject property contains sufficient excess land that could be developed for office use.

Plaintiff's expert valued the subject property under the income capitalization and market approaches to value. Despite the wide disparity between his conclusions of value under each approach to value, the expert determined both approaches were relevant but relied more on his income approach.

The borough's expert concluded separate office and industrial values of the existing improvements on the subject property using only the income capitalization approach. He concluded, through comparable land sales, an excess land value based on a determination that the subject property contains an excess 29,901-square-foot buildable land area that can yield a 59,802-square-foot office building. He added the excess land value to separately determined office and industrial values for each year, to arrive at overall values.

Held: Neither 90 Riverdale nor the borough of Riverdale met their respective burdens for an adjustment of the assessment placed on the subject property for any of the tax years in dispute and accordingly the subject property's 2009, 2010 and 2011 assessments are affirmed.

The court found that the income approach was the most appropriate valuation method for the subject property.

Plaintiff's expert, in addition to using a market approach estimate, which yielded vastly different results, predicated his income approach on the removal of a large area of second-floor space, without substantiating the necessity or cost for the removal. Although the court accepts as plausible 90 Riverdale's premise that the building on the subject property contains an obsolete second-floor office area that impedes the ceiling height of the underlying unfinished industrial space to below market standards and would best be removed, its expert falls short of the mark in providing a reliable opinion of value for each tax year under both approaches to value he used.

Plaintiff's expert provided no convincing evidence that there was no market for the building as configured, or that the proposed demolition was the only way to make the building marketable. This constitutes a significant flaw in the analysis as his entire income approach is predicated on the removal of the second-floor office area that would reduce the subject property's nearly 60,000-square-foot building by 18,880 square feet. All of his proposed comparable rentals, and all of his calculations under the income approach are premised on the reduction of the building area to 40,656 square feet, which would reduce the percentage of office space to less than 30 percent, and significantly increase the clear ceiling height of the unfinished industrial area. Without reliable data to substantiate the necessity or cost for the removal of the second-floor office area, the only viable way to value the subject property under the income approach would be as it is currently configured.

The market approach of 90 Riverdale's expert is also predicated on the removal of the second-floor office area and all the proposed comparable sales are compared and adjusted to the reduced size of the building on the subject property. The expert himself did not place much weight on his market approach, which yields values more than $1 million less than his conclusions of value under the income approach for each tax year at issue. Still, 90 Riverdale's expert found the market approach "relevant" and factored it in during the reconciliation process, further reducing his overall conclusions of value.

Although appraisal experts clearly have great leeway in the reconciliation of values, here, the court finds that 90 Riverdale has failed to meet its burden of proof.

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