New York State Court of Claims

New York State Court of Claims

PENETRADAR v. THE STATE OF NEW YORK, #2005-031-533, Claim No. 104084


Synopsis



Case Information

UID:
2005-031-533
Claimant(s):
PENETRADAR CORPORATION
Claimant short name:
PENETRADAR
Footnote (claimant name) :

Defendant(s):
THE STATE OF NEW YORK
Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
104084
Motion number(s):

Cross-motion number(s):

Judge:
RENÉE FORGENSI MINARIK
Claimant’s attorney:
MICHAEL G. WOLFGANG, ESQ.
Defendant’s attorney:
HON. ELIOT SPITZER
New York State Attorney General
BY: WILLIAM D. LONERGAN, ESQ.
Assistant Attorney General
Third-party defendant’s attorney:

Signature date:
December 21, 2005
City:
Rochester
Comments:

Official citation:

Appellate results:

See also (multicaptioned case)



Decision
Claimant, Penetradar Corporation, filed Claim No. 104084 on April 5, 2001, pursuant to Section 30 of the New York State Highway Law, claiming the State’s appropriation of his land damaged the corporation. I held a trial on this matter on July 11 and 12, 2005.
The subject parcel appears on appropriation maps filed in the Office of the County Clerk of Erie County on April 21, 1998 and is entitled “Niagara Falls-Buffalo, Part 2, S.H. 5164, Niagara County, Map No. 27, Parcel No. 28.” The appropriation maps and description contained therein are adopted by the Court and incorporated by reference. I have made the required viewing of the premises. This claim has not been assigned or submitted to any other court or tribunal for audit or determination.
The subject property is commonly known as 2509 Niagara Falls Boulevard, Wheatfield, New York. The following facts are undisputed:
Land area before the taking: 125,888± square feet
Land area after the taking: 124, 282± square feet
Taking: 1,606 square feet
Zoning: C-1, Commercial District (with R-3 Residential)
Date of vesting: April 21, 1998
(Exh. 1, p. 1; Exh. A, p. 2)
Claimant corporation was represented by its President, Anthony Alongi, at trial. Mr. Alongi was the Vice President at the time of the taking in 1998. He testified that Penetradar Corporation manufactures “ground penetrating radar” systems: devices that measure pavement thickness and bridge deck condition. They sell their systems nationally and internationally as well as provide consulting services. The facility rests on a flag shaped lot with approximately 122.65± square feet of frontage on Niagara Falls Boulevard in the Town of Wheatfield. The site is 606.8± square feet at its deepest and is at road grade. It is improved with a masonry building surrounded by blacktop with an additional gravel and dirt lot behind the building.
The size of the masonry building is a point of contention. Claimant describes it as a one-story and a two-story masonry building (Exh. 1, p. 17). Defendant describes it as a one-story building with a mezzanine (Exh. A, p.40). Claimant’s appraiser described the second floor space as “unfinished” and used for storage; he included the 1,800± square feet of second floor space in his calculations for gross square footage. Defendant’s appraiser described the second floor as an unfinished mezzanine that happens to be used as storage; he declined to include the 1,800± square feet of space in his calculations for gross square footage. Instead, he treated the space as an amenity that a prospective buyer would be interested in purchasing but at a lesser amount per square foot than the more functional first floor space. I have been provided with only a floor plan and pictures of the first floor (Exh. 1, p.23, 70-71; Exh. A, p C-11 - C-14) so I have to rely on the witness’ testimony. I agree with Defendant’s appraiser that a prospective buyer would appreciate second floor storage, but that the prospective buyer’s primary interest would be the first floor space and that he or she would pay more money per square foot for first floor space than for the storage space; the storage space is an amenity that enhances the value of the first floor warehouse/office space. Therefore, I find the gross square footage to be 15,835± square feet (Exh. A, p.40).
The original one story building with the mezzanine was built in 1962 as an auto dealership. Additions to that building were constructed in 1965 and 1968. Over that time period, and up to 1995 when Claimant purchased the property, it was used as a golf supply retail store with warehousing and a lumber yard company (Exh. A, p.40; Exh. 1, p.19). After Claimant purchased the property in 1995, Claimant undertook significant renovations over a two year period, approximately $360,000 worth (Exh. A, p.40). Claimant’s appraiser defined the property’s condition as “good” (Exh. 1, p.33). Defendant’s appraiser defined the property’s condition as “fair” (Exh. A, p. 90). I have reviewed each expert’s testimony and their respective reports, as well as having personally viewed the property, and find the property’s condition to be fair, rather than good, based upon the building’s exterior condition and the lot’s appearance.
Both appraisers evaluated the property using the Sales Comparison Approach and the Income Approach. Claimant’s appraiser also applied the Cost Approach. Defendant’s appraiser declined to use the Cost Approach. Based on the facts recited above regarding the condition of the improvements, the number of use changes and additions, and the extensive renovations done between 1995 and 1997, I find the Cost Approach not applicable and will rely on the Sales Comparison Approach and the Income Approach for value.
Value “Before” the Taking
The parties stipulated at trial to a land value of $251,776 ($2.00 per square foot). I am crediting Claimant’s appraiser’s testimony and evidence that the land improvement value is $71,905 (Exh. 1, p. 42). The parties’ experts differed on a value for an improved property. Both appraisers selected completely different comparable sales (Exh. 1, p.33; Exh. A, p.58). I have reviewed the selected properties’ descriptions and the trial testimony. Claimant’s appraiser selected four comparable sales relatively similar and local; I do not find his adjustments unreasonable. Defendant’s appraiser analyzed comparable sales in a different way, looking for properties that intentionally offered and marketed the flexibility for interior renovations to accommodate a buyer. These properties were of more recent construction and placed in more valuable neighborhoods. I also find these properties, with their adjustments, comparable. Having adopted their respective adjusted square foot sales price, I averaged them and have settled on a value of $36.04 per square foot. When applied to the gross square footage of 15,835 square feet, I have an indicated value of $570,693 in the “Before” situation, based upon the Comparable Sales Approach.
Both parties also did a valuation analysis based on the Income Approach and they differed slightly on the overall capitalization rate to be applied; Claimant’s computed a rate of 10.2005% (Exh. 1, p.56) and Defendant computed a rate of 10.54% (Exh. A, p. 63). The major difference appears to be the loan rate used in the analysis. Because both rates are within the realm of reasonableness and, as I have no reason to adopt one figure over the other, I will use an overall capitalization rate of 10.3%.
Claimant’s appraiser selected four comparable rentals, all of which were significantly smaller than the subject property (Exh. 1, p. 49). Defendant’s appraiser selected properties of comparable size but located in more desirable commercial areas and in better condition (Exh. A, p. 73). The adjusted rental value per square foot in the combined analysis ranges from $3.30 to $5.69. I will adopt a value of $4.24, the low end, given that the adjustments for condition were based on an average to good rating, while I determined the condition of the subject property to be fair. Thus, the potential gross income (“PGI”) for the subject property is $67,140 ($4.24 x 15,835 square feet).
Expenses, as I adopted, as a percentage of PGI, consist of a vacancy and collection loss at 5%, or $3,357, and a management fee of 5% of the effective gross income (PGI less vacancy and collection loss) which is $3,189. Reserves for replacement are reasonable at $.25 per square foot, or $3,959. Legal and audit expenses of $1,500 are also reasonable. Defendant’s appraiser provides for a vacancy expense of $3,000 which I will adopt. Total expenses are $11,648. It is assumed that the tenant pays all other expenses. Thus, the value indicated by the Income Approach is as follows:
PGI $ 67,140
5% Vacancy & Loss $ ( 3,357)
Effective Gross Income $ 63,783

Expenses
5% Management Fee $ 3,189
Reserves for Replacement 3,959
Legal and Audit 1,500
Vacancy 3,000
Total $ 11,648
Net Operating Income $ 52,135
Net Operating Income = 52,135 = $506,165
Overall Capitalization Rate .103

I find the Comparable Sales Approach the most reliable indicator of value, noting that the Income Approach provides a reasonable “check” on the process. I allocate the market value before the appropriation as follows:
Land: $251,776
Land Improvements: 71,905
Building Improvements: 318,918

$642,599

Value “After” the Taking
There is no disagreement regarding the direct impact of the taking. Land area decreased 1,606± square feet across the front of the property. The land value is unchanged at $2.00 per square foot. The land value after the taking is $248,564. In addition, Claimant lost 1,606± square feet of pavement as well as concrete curb bumpers (Exh. 1, p. 60; Exh. A, p.80). There is also no disagreement on indirect damage to the subject property in that Claimant lost parking spaces in the front of his building. The parties do disagree on the number of parking spaces lost, in addition to whether or not vendors experience difficulties making deliveries to the subject site via tractor-trailer and the occurrence of “sink holes” in the subject property’s parking surface. Claimant offers a “cost to cure” for the latter two of the proposed indirect damages.
I will use a Sales Comparison Approach and an Income Approach in the “after” situation, rejecting the Cost Approach for the same reasons listed above in this decision.
Parking
Claimant’s engineer testified that the appropriation caused a loss of five parking spaces. Defendant’s appraiser also testified to the loss of five parking spaces while Claimant’s appraiser proposed a loss of three spaces. As best as I can figure from the evidence, a mathematical formula that uses applicable zoning parking requirements and square footage yields a five space loss while Claimant’s three space loss appears to be an actual accounting of what had been in the front of the building. I will adopt a five space loss and I agree with Claimant’s appraiser that putting these spaces in the back of the building is not feasible because there is no appropriate entrance for the public in the back of the subject property. I agree with both appraisers that there is indirect damage to the subject property due to the loss of parking spaces.
Regarding Claimant’s allegation that tractor-trailers have difficulty maneuvering in the front lot so they can back into the driveway on the side of the building, I find that this problem existed before the appropriation. I base my conclusion on my review of the property, Exh. 1, Addendum E and the testimony at trial. The appropriation had an impact only on a strip of land along the road frontage; the building and driveway were not affected.
Parking Lot
There was a lot of testimony related to the condition of the parking lot, in particular, the appearance of sink holes. Claimant states that, during the course of the construction to widen Niagara Falls Boulevard, heavy construction equipment traversed the front parking area, damaging the pavement and the large drainage pipe underneath the parking lot (Exh. 1, Addendum D). Defendant maintains this part of the claim is actually a construction claim not associated with the appropriation. The trial testimony and evidence show that the parking lot was definitely damaged. The trial testimony was also clear that large delivery trucks, as well as construction vehicles, traversed the parking lot. I have no proof that discounts the possibility that some of the damage could have been caused by delivery trucks, nor do I have any proof regarding who owned and operated the construction vehicles. The Claimant’s engineer stated that it was either “the contractor and/or the New York State Department of Transportation engineer” that permitted the construction vehicles to traverse the subject property’s parking lot (Exh. 1, Addendum D). Without proper proof of attribution, I must disallow any award for damages due to highway construction (Chili Plaza v State of New York, 25 AD2d 491).
Claimant’s appraiser relied upon the same four sales used in his Comparable Sales Approach in the “Before” valuation, but decreased the subject property’s value by 10% based upon the lost parking and the diminished ability to move cars and trucks around in the front of the building (Exh. 1, p.75). He reduced his square foot value from $30 to $27. Defendant’s appraiser also relied upon the same comparable sales used in his Comparable Sales Approach in the “Before” valuation, but made an adjustment for the loss of parking and the land. He reduced his square foot value from $40 to $38.75 (Exh. A, p. 92). Claimant’s appraiser did not make a separate and distinct adjustment to each of his comparable sales so my methodology of averaging the parties’ respective adjusted sales prices is not going to work. Here, I will take their two indicated values of $38.75 and $27.00 and average those two numbers instead. Thus, the final indicated value after the appropriation of the improvement is $32.88/square foot or $520,655 ($32.88 x 15,835 square feet).
On the Income Approach to value, Claimant’s appraiser used the same rentals as in the “Before” situation to establish market rents, but made a downward adjustment to accommodate the parking situation and adopted a $3.50/square foot value, or a 12.5% reduction (Exh. 1, p.81 - down from $4.00 per square foot). Defendant’s appraiser also relied upon the same rentals as in his “Before” valuation to establish market rent, but made a downward adjustment of $.15 for the parking situation and adopted a rent of $5.20/square foot or a 3% reduction (Exh. A, p. 93 - down from $5.35). Based upon my property inspection, the trial exhibits and Claimant’s testimony regarding the parking situation after the appropriation, I find that Defendant’s appraiser’s 3% reduction is too low but Claimant’s appraiser’s reduction of 12.5% is too high. I will adopt a 10% reduction for market rent and apply it to my $4.24/square foot rental value in the “Before” situation. Thus, the rental value after the appropriation is $3.82/square foot. There was nothing in the record to lead me to believe that the computation of the expenses or the capitalization rate needed to be changed to determine a fair and reasonable indication of value after the appropriation.
PGI $60,490 $3.82 x 15,835
5% Vacancy & Loss ($3,025)
Effective Gross Income $57,465

Expenses
5% Management Fee $ 2,873
Reserves for Replacement 3,959
Legal & Audit 1,500
Vacancy 3,000
$ 11,332
Net Operating Income $46,133
Net Operating Income = 46,133 = $ 447,893
Capitalization Rate .103
I find the Comparable Sale Approach the most reliable indication of value, noting that the Income Approach provides a reasonable “check” on the process. I allocate the market value after the appropriation as follows:
Land: $ 248,564
Land Improvements: 69,505
Building Improvements: 272,091
$ 590,160

Conclusion


December 21, 2005
Rochester, New York

HON. RENÉE FORGENSI MINARIK
Judge of the Court of Claims