Appropriation claim for direct and consequential damages to commercial property, including cost to cure, arising from a partial taking and a temporary easement.
|Claimant(s):||LERNER PAVLICK REALTY|
|Claimant short name:||LERNER PAVLICK|
|Footnote (claimant name) :|
|Defendant(s):||THE STATE OF NEW YORK|
|Footnote (defendant name) :|
|Judge:||Terry Jane Ruderman|
|Claimant's attorney:||JACOBOWITZ & GUBITS, LLP
By: Robert E. DiNardo, Esq.
Michele L. Babcock, Esq.
|Defendant's attorney:||HON. ANDREW M. CUOMO
Attorney General for the State of New York
By: J. Gardner Ryan, Assistant Attorney General
|Third-party defendant's attorney:|
|Signature date:||October 20, 2009|
|See also (multicaptioned case)|
This is a timely filed claim for the partial appropriation of claimant's property and a temporary easement pursuant to Eminent Domain Procedure Law and section 30 of the Highway Law. Notice of appropriation was served on claimant by certified mail on or about October 24, 2002 (Claim, ¶ 4).(1) The claim was filed with the Clerk of the Court on October 21, 2005 and has not been assigned to any other court or tribunal for audit or determination. The Court has made the required viewing of the property pursuant to Court of Claims Act § 12(4).Background
The project, entitled "Drury Lane, County Road 54/Cochecton Turnpike, Part 2, S.H. 43," PIN 8062.05,(2) was designed to improve access to Stewart Airport by constructing a new highway, Route 747, running southward from Route 17K in the Town of Montgomery, Orange County, to an interchange with Interstate 84. The subject property is located on the south side of Route 17K. Prior to the taking, it was comprised of two abutting parcels totaling 36.1 acres.(3) The front parcel bordered Route 17K and was improved with a large industrial building. The rear parcel had no frontage; it was accessible over the front lands or via a deeded, unimproved right-of-way over the lands of others. As a result of the project, claimant's property is bisected by Route 747, leaving claimant with 18.6 acres to the east of the new highway and 13.6 acres to the west. A new four-way, signalized intersection of Routes 17K and 747 was created at the northwest corner of the property.
At the commencement of trial, the parties stipulated to direct damages of $230,500 for the fee takings and $16,250 for the temporary easement. Thus, the sole issue before the Court is whether the property suffered consequential damages as a result of the fee taking or temporary easement. Consequential damages are measured by the difference between the fair market value of the property before the taking and the remainder afterward, less the value of the land and any improvements appropriated (McDonald v State of New York, 42 NY2d 900; Acme Theatres v State of New York, 26 NY2d 385; Hewitt v State of New York, 54 AD2d 812). Where there are consequential damages that may be cured, the State is responsible for only the lesser of the damage or the cost to cure the damage (Goldsmith v State of New York, 32 AD2d 607, affd 26 NY2d 899).
Claimant contends that the property suffered consequential damages based upon: (1) a permanent diminution in the property's value caused by a reduction of the building's west side yard due to the fee taking for the highway right-of-way; (2) the cost to cure certain deficiencies created by the taking and construction, including drainage issues and the need for fencing and screening required to bring the newly configured property into compliance with zoning regulations; (3) claimant's inability to lease the vacant space for the duration of the temporary easement; and (4) rent concessions to claimant's tenants during the period of construction. The State asserts that the benefit to the property resulting from the construction of Route 747 outweighs any detriment, including the asserted cure items, and that the remaining elements of damages sought by claimant are not compensable.The Property
The subject property is designated on the Town of Montgomery tax map as tax lots 31-1-65.1 and 31-1-67.(4) The front parcel, tax lot 67, is 16+ acres and is essentially rectangular, running 796 feet along Route 17K and extending approximately 900 feet southward from the highway. It is bordered on the west at its road frontage by a 200' x 275' parcel improved with a pizzeria.
The building is a 120,590-square-foot concrete block and steel frame factory with an attached 25,632-square-foot open shed. It was erected in stages beginning in the 1960's. It is enclosed primarily with concrete block and sheet metal exterior walls. A 2,900-square-foot office space extends out from the midpoint of the northern face of the building. A 176-foot long, 2½- to 4-foot high foundation with an open, two-story steel framework extends 45 feet from the middle of the western face. Barbara Lerner, a partner in claimant Lerner Pavlick Realty, testified that the foundation was part of an abandoned project to expand the building and was sometimes used as a loading dock.
The interior of the building is divided by east-west walls into three 354'-wide tenant spaces (Ex 15). The southern space is leased to a fine art foundry, Polich Art Works. The Polich space is a single 95'-deep bay with a 39' ceiling. It is separated from the rest of the building by a concrete block wall on which there is a mezzanine housing Polich's offices. The open shed extending from the southern face of the building is also leased by Polich. The middle section of the building is leased by the prominent artist and sculptor Frank Stella. The Stella space consists of two 52'-deep bays divided by a row of steel support columns. At the time of the taking, the northernmost section had been vacated by its most recent tenant, MJM Studios, Inc. (MJM). The area was referred to at trial as the vacant space. The vacant space is divided into two building-width bays; the northerly of the two is 52' deep and the southerly is 72' deep. The northwest corner of the space is enclosed and has a 30' ceiling, while the remainder of the vacant space has a 25' ceiling.
Each bay in the building has one or more multi-ton cranes which run east-west across the building on rails attached to the steel support beams.(5) Lerner testified that the cranes are designed to be used in manufacturing processes to move heavy materials in a linear fashion. The Polich space also has a number of swing arm or jib cranes used to move heavy objects between work stations. Overhead doors on all sides of the building provide truck access to the various tenant spaces.
At the time of the taking, a paved parking area ran along the north face of the building from the office extension to the northwest corner of the property. Gravel and dirt surfaces around the rear and sides of the building were used for additional parking. Vehicle travel was accessible via a gate to the west side yard. Between the west side drive and the property line was a concrete pad used as an outdoor display or storage area for the tenants' finished artwork.
The 20-acre rear parcel, tax lot 65.1, has been described as a triangular flag. Its northern boundary abuts the front parcel. The eastern property line stretches diagonally from the northeast corner, nearly coming to a point with the western property line at the southern tip of the parcel. At its northwest corner, lot 65.1 extends in a narrow strip several hundred feet northward along the western border of lot 67, ending at the southern boundary of the pizzeria lot. Thus, the rear parcel is set back from Route 17K by the pizzeria property and claimant's front parcel. The rear parcel has deeded access via a 50'-wide right-of-way over lands of others, but the right-of-way was undeveloped. The rear parcel is unimproved. It is used by the owner and tenants for the storage of raw and fabricated materials, truck canisters, vehicles and machinery. It is accessed by vehicles over dirt tracks.The Appropriation
Three taking maps were filed with the Orange County Clerk on October 2, 2002: Map No. 36, Parcel 37 acquired fee title to 4.395± acres of claimant's property as a portion of the right-of-way needed for the new highway (Ex 45, Addenda at 53). Additional property required to make up the right-of-way was appropriated from other owners to the west. Map No. 233, Parcel 256 acquired a 19,601 ± square foot temporary, non-exclusive easement for grading, seeding and a work area for the construction (Ex 45, Addenda at 57). The easement runs in a narrow strip along Route 17K for 196 feet in the northwest corner of the property and then it continues south from the corner for 593 feet along the property acquired for the right-of-way. The temporary easement ran from October 2, 2002 until March 18, 2008 (Ex 3). Map No. 234, Parcel 257 acquired in fee a small, flat triangle of land totaling 2,615 ± square feet near the northeast corner of the industrial building from the easterly portion of the property at Route 17K, for the purpose of extending a culvert under Route 17K to allow realignment of the road.Effect of the Taking
Route 747 now runs southward from the northwest corner of claimant's property and swings to the southeast, across what was formerly the rear parcel. To the east of the new highway is the 14.12-acre remainder of tax lot 67 and a 4.49-acre remainder of tax lot 65.1. To the west of Route 747 is a 13.61-acre parcel comprised primarily of the remainder of lot 65.1 with a sliver of tax lot 67. The property is at grade with Route 747 at its intersection with Route 17K, but as the new highway proceeds southward, the elevation differential between the roadbed and claimant's lands increases to approximately six feet.The fee taking for the highway right-of-way varies in width from 103 feet at the northwest corner of the property, to 85 feet along the western side of the building, to 156 feet at its southernmost end. Significantly, at the northwest corner of the building, the west side yard was reduced from 93 feet to 69 feet (T [11-12-08], at 130-32; Ex 33, at 4).(6)
At the raised concrete platform, the distance to the property line was reduced to approximately 28 to 30 feet. At the southwest corner of the building, the post-taking distance was 75 feet. According to claimant, the reduction in the west side yard significantly impacts the utility of the building by making it difficult to load and unload materials, particularly at the two northernmost west side overhead doors.
Although the property was appropriated in 2002, construction was delayed until 2006. During that time the State, with claimant's consent, undertook certain modifications of the property to ameliorate the disruption caused by the road construction. The outdoor display area was relocated. A new driveway was constructed from Route 17K, in front of the office space. The existing lawn area, to the east of the office entrance, was replaced with pavement to extend the building's parking lot. A gate was installed on the chain link fence running from the northeast corner of the building to the eastern property line and a paved access through the gate was added to meet the existing gravel and dirt track of the east side yard. A second paved parking area with a driveway from the new highway was built at the rear of the building. A gated fence was installed from the southwest corner of the shed around and just past the parking area.
Claimant asserts that the construction of Route 747 and the ameliorative measures taken by the State caused consequential damages to the remainder. At the southern end of the property where Route 747 is elevated, a drainage system was installed under the highway. According to claimant, the drainage system was improperly installed and as a result, ponding conditions exist on the southern end of the property, both east and west of the highway. Paul McCreary, a licensed engineer, testified on behalf of claimant that the property does not conform with the requirements of the Town of Montgomery Gateway Overlay District which, among other things, requires screening of parking and loading areas, landscaping of parking lots and minimum distance between state roads and curb cuts. McCreary further testified that he observed a depression in the new front parking area which creates a "birdbath" of water during rain events, and that the rear parking area was constructed below the existing grade causing water to collect there as well (T [11-12-08], at 120-21). Claimant's appraiser, Gerald Griffin, Jr., testified that three monitoring wells on the property had been covered by pavement. He also opined that the property's exposure along the new highway presented a heightened risk of theft and vandalism.Valuation of the Fee Taking
Proof as to valuation was offered by certified real estate appraisers Gerald Griffin, Jr., on behalf of claimant, and Kenneth Golub on behalf of defendant. The appraisers characterized the building as a factory and agreed that the highest and best use of the improved property before the taking was as an industrial site consistent with its current improvements. Griffin more specifically concluded that a manufacturing function would make best use of the building's crane system. Noting that manufacturing is generally in decline in the area, Golub found the current light industrial use to be highest and best.
Both appraisers used the comparable sales and income approaches to valuation. Their conclusions as to value nonetheless vary significantly. As further discussed below, the discrepancy is due in large part to a divergence in methodology regarding the valuation of the rear parcel or "excess lands" in the before-taking situation, and a difference of opinion as to the effect on value of the reduction in the west side yard. With respect to the consequential damages attributable to the project itself and the property's frontage on the new highway, Griffin maintained that the cost to cure the alleged deficiencies was less than their negative impact on the market value of the property. He therefore appraised the property after the taking based upon the assumption that those items would be cured and added the cost to cure as a measure of consequential damages. Golub's appraisal does not refer to the purported cure items.
Each appraiser first valued the entire parcel as if vacant. The appraisers relied on one common sale (Griffin's Sale 2/Golub's Sale 6362). In addition, Griffin's Sale 3 was an earlier sale of the same property as Golub's Sale 8352.
Griffin's four comparable sales took place between October 1999 and May 2002. Based upon his conclusion that industrial land values had been increasing steadily at about 5% to 6% per year in the period before the taking, Griffin made positive adjustments of 4% as compared to Sales 1 and 3 (May 2002), 13% for Sale 2 (August 2000) and 18% for Sale 4 (October 1999). Three of the four comparable properties are located on Neelytown Road, a modern warehouse neighborhood/industrial park about two miles from Interstate 84. Griffin made no adjustment for location. He did make minor adjustments for size, topography and water/sewer service. Weighing the median adjusted sales more heavily, he reached a before value of $50,000 per acre.
Golub relied upon five comparable sales, including three on Neelytown Road for which he made 5% adjustments for location. Although the sale dates ranged from August 2000 to June 2004, Golub did not make any adjustments for time or for water/sewer, reasoning that municipal utilities were of little value for the type of property at issue. With respect to Sale 8352 (Griffin's Sale 3), Golub made a 5% upward adjustment to reflect the subject's superior topography. After incorporating other adjustments for size and shape/frontage, he reached a value of $51,750 per acre. The stipulated direct damages of $230,500 for the 4.45-acre fee taking reflect the higher per acre value of $51,750.
Sales Comparison Approach
As for the value of the property as improved, the appraisers' methodologies differed significantly. Griffin set aside these rear parcels, the back 20 acres of the subject property, as excess lands. He valued only the 16-acre front parcel as improved and reached an indicated value of $40.00 per square foot or $4,823,600 (120,590 square feet x $40/sf). He then added a value for the 20-acre rear parcel at the per acre rate determined in valuing the entire property as vacant land, i.e., $50,000 per acre or $1,000,000, for a total before-taking value of $5,800,000 (R). Golub valued the rear parcel in a manner consistent with his vacant land approach: as contributing to the front parcel. He engaged in a sales comparison, treating the subject as an improved 36-acre lot and reached a value of $29.50 per square foot or $3,650,000 (R) ($29.50 x 123,564 square feet [Golub's estimate of square footage]).
Griffin's methodology overvalues the excess lands. The per acre value of the land as vacant was calculated based upon a 36-acre parcel with access and frontage. It is reasonable to assume that a 20-acre parcel with no frontage and access only over an undeveloped right-of-way would be worth substantially less per acre than a 36-acre parcel with frontage on Route 17K. However, no evidence was presented upon which the Court could find an independent value of that parcel. The Court therefore adopts Golub's methodology for valuing the land as improved. Griffin's data and analysis need not be wholly disregarded however. The flaw in his methodology affects the Land:Building ratio category of his sales comparison, but the remaining factors he uses in reaching a valuation are not significantly impacted by the error. Griffin's comparable sales are sufficiently similar in Land:Building ratio to the subject to be considered once an adjustment is made to reflect the appropriate 12.9:1 ratio.
Griffin relied upon five comparable sales. He made adjustments for time to Sales 6, 8 and 9. The Court will apply a time adjustment of 5% per year and accordingly reduces that adjustment on Sales 6 and 9 to 10%. The Land:Building ratios are adjusted as follows: Sale 5 (+10%), Sale 6 (+20%), Sale 7 (+15%), Sale 8 (+5%) and Sale 9 (+10%). The Court also finds inadequate Griffin's negative adjustment for the subject's larger building size as compared to Sales 7, 8 and 9 and increases those adjustments to 10%. On the whole, Griffin's comparable sales are substantially newer and of higher-quality construction than the subject. According to the appraisal, Griffin's adjustments for age and condition of the building place the subject at 25 years. However, he acknowledged at trial that the effective age of the subject was 45 years. Further, Griffin does not include the construction of the building as a separate factor. The Court accepts Golub's assertion that the subject's relatively inexpensive steel panel construction is inferior to masonry and makes the following adjustments to Griffin's values accordingly:
Sale 5 -20% -10%
Sale 6 -15% -10%
Sale 7 -10% - 5%
Sale 8 -15% 0%
Sale 9 - 5% -10%
Golub relied upon four comparable sales in reaching an indicated value of $29.50 per square foot. He adjusted for time on a January 2000 sale, noting the adjustment was not a reflection of any pattern of appreciation, but a token adjustment to reflect the erosion of the dollar over time. Again recognizing a 5% per year increase, the Court will apply a 14% adjustment to the January 2000 sale (Sale 6802) and a -5% adjustment to the September 2003 sale (Sale 7669). A 5% adjustment to Sale 7669 is also appropriate to reflect the reduced utility of that property's two-story configuration. Finally, the Court will adjust Golub's Sales 7069 and 7669 by -5% to account for those properties' access to municipal utilities.
The lowest indicated value was derived after a 45% net adjustment. The concept of using comparable sales to value property presupposes similarity between the subject and the comparable properties. The greater the number and percentage of adjustments, the less comparable the property. The 45% adjustment suggests that the sale is so dissimilar to the subject as to render it useless in determining value (see 7A Nichols, Eminent Domain § G13.04 [3d ed] ["If the net adjustments to the comparable sale equals 30% or more of its unit price to make it equal to the subject property, then it would seem* * * that such comparable sale has been rendered no longer comparable and of no probative value in estimating the market value of the subject"]). Claimant's Sale 6 required substantial adjustments for time and in the Land:Building ratio, age/condition and construction factors. Although the factors ultimately balanced each other out and resulted in only a -5% net adjustment, the Court attributes little weight to this comparable. The remaining values range from $23.45 to $45.60 with a median just over $31.00 and five of the eight values clustered below $33.00. Based upon the foregoing comparable sales analysis, the Court finds the before value of the subject property as improved to be $32.50 per square foot or $3,920,000 (R) (120,590 per square foot x $32.50).
Both appraisers calculated actual income for the property based upon the leases in effect at the time of the taking. Polich and Stella leased the premises beginning in 1998 (T [11-14-2008], at 3-4). Polich subsequently renewed its lease for interior space for the period September 1, 2001 to August 31, 2006 (Ex 6) and, although Stella never executed a lease for that period, he did continue to occupy the space and paid the same rent as Polich. In addition, Polich leased the open shed for $1.00 per square foot per year. The northern bay was leased to MJM beginning in 1998. The terms of its lease were modified by a 2000 lease amendment (Ex 12).(7)
Golub noted discrepancies among the documents and testimony as to the square footage of each bay and, rather than attempting to reconcile the respective rents with the square footages, he divided the combined annual rent by the total building square footage. He characterized the open shed as valuable in its contribution to the use of the interior space, not as a separate unit, so he divided the income only by the interior square footage. Based upon his assumptions, Golub calculated an actual average income of $4.64 per square foot. By reference to comparable leases in the market he rounded the "subject market rent" to $4.75, for a total income of $586,929 (Ex A, at 37).
Claimant takes issue with Golub's comparison analysis, noting that Golub did not make specific adjustments to reach an indicated value for the subject, but only included a description of the comparable leases and a brief narrative as to general differences from the subject (Ex A, at 37). Among other things, the narrative does not address the fact that the comparable leases are completely net or triple net while the subject's rent figures are net only of utilities and increases over base year taxes. Golub acknowledged on cross-examination that he did not know the amount of taxes (T [2-5-09], at 109). In any case, the effective rents (base rent plus passed-through costs) would be greater than the figures stated in Golub's appraisal. The comparison between a completely net lease and one which is not completely net involves a quantifiable distinction in the cost of occupancy. Without some indication that Golub considered the distinction, the Court cannot rely upon his conclusion that the subject's rent is consistent with the market. Despite pointing out the deficiencies in Golub's analysis, claimant did not assert that something other than the subject's actual rents should provide the basis for the capitalization of income (see Motsiff v State of New York, 32 AD2d 729 ["(w)here * * * there is no claim that the leases were improvident or that their terms were unusual, (actual rent) should be considered in determining rental value"], affd 26 NY2d 692; CMRC v State of New York, UID 2002-029-218, Claim No. 94967, Mignano, J. [Sept. 30, 2002]).
Griffin derived square footage measurements of each space and calculated a separate rent for each tenancy, reaching a total income figure of $586,597 (Ex 45, at 32) a figure $332 lower than Golub's calculation. Griffin concluded that the leases in effect in 2002 averaged $5.00 per square foot, a figure he accepted as representative of the market by comparison to three similar leases (Ex 45, at 34). Given that the discrepancy between the two experts' calculations of income is negligible, the Court will adopt a median value of $586,750.
Golub reduced the gross rent by a vacancy and credit loss of 10% reasoning that the vacancy history of the property made it a more risky investment. He further reduced the effective gross income by certain expenses including a management cost of $24,000, repairs and reserves for replacement of $36,000, legal and accounting costs of $4,800 and taxes of $90,000. He applied a capitalization rate of 10.0589% to the net income to reach an indicated value of $3,700,000. Golub gave consideration to both the income approach and the sales comparison approach and concluded that the value of the subject before taking was $3,700,000.
Griffin applied a 5% vacancy adjustment. He also adjusted for expenses including $22,291 in management costs, $25,000 in insurance, $30,500 combined maintenance and reserves, and $60,300 in taxes.(8) He added a $3,000 expense for the required monitoring of wells on the property. He applied a 10.2% capitalization rate and found an indicated value of $4,080,157. Griffin's valuation again was based upon the assumption that the income-producing property was limited to the 16-acre front parcel. He added $1,000,000 to his final value to account for the 20 acres he deemed "excess lands" reaching a total of $5,080,000 (R). He weighed the income approach value at 70% and the sales comparison approach at 30% for a final before-taking indicated value of $5,450,000.
The Court has already rejected Griffin's method of valuing the front parcel as improved and simply adding $1,000,000 to account for the rear 20 acres. As discussed above, the $50,000 per acre figure was derived from a valuation of the entire 36-acre parcel as if it were vacant land. Griffin did not appraise the rear parcel as a separate unit to reflect the negative characteristics of that land. The Court is constrained to disregard that portion of Griffin's appraisal which purports to place a value on the rear lands.
Claimant contends that Golub's methodology is faulty in that it ascribes no value to the excess lands. This argument is not persuasive. Golub's valuation of the entire parcel as a single unit is based upon his assumption that the cost of developing the right-of-way to the rear parcel, necessary for a separate use, would be prohibitive given market conditions and physical attributes of the subject. He concluded that the rear acreage is valuable only in its contribution to the front parcel (T [2-5-09], at 13, 17-19, 72). Although Golub's conclusion is not supported by estimates of the actual cost to develop the right-of-way and the value of the rear parcel with developed access, the fact remains that claimant has provided no alternative analysis upon which the Court could assign a value to the rear lands. The burden of proving consequential damages, and providing a reasonable basis for evaluation of those damages, is on the claimant (J.W. Mays, Inc. v State of New York, 300 AD2d 545 [2d Dept 2002], lv denied 99 NY2d 511; Niagara Mohawk Power Corp. v Olin, 138 AD2d 940 [4th Dept 1988]; Mil-Pine Plaza v State of New York, 72 AD2d 460 [4th Dept 1980]). While a valuation treating the two tax parcels as separate properties for all purposes, including the as vacant analysis, may have been appropriate, neither appraiser did so in this case.
Golub's rationale for applying a 10% vacancy and credit loss is not supported by any proof of a greater than average historical vacancy rate. The Court therefore accepts claimant's 5% adjustment for vacancy and credit loss and the following expenses: management fee of $24,000, maintenance and reserves of $32,000, insurance of $25,000, legal and accounting expenses of $4,800, base year taxes of $59,600,(9) and monitoring costs $3,000. In sum, the income approach yields the following value: $586,750 - $29,337.50 ($586,750 x 5%) = $557,412.50 - $148,400 = $409,012.50. The Court accepts Griffin's capitalization rate of 10.2% for a value of $4,010,000 (R).
Applying both the capitalization of income and sales comparison approaches, the Court finds the before value of the property to be $4,000,000, with $1,870,000 attributable to the land and $2,130,000 attributable to the building.
The appraisers differed in their treatment of the lands for purposes of post-taking valuation. Griffin valued the property in the after situation as two parcels (hereinafter the East and West lots). He treated the 4.5-acre east side remainder of tax lot 65.1 as a component of the improved lot. Golub viewed the after configuration as three parcels: the 14.1-acre remainder of lot 67 (hereinafter referred to as Lot 1), the 4.5-acre remainder of lot 65.1 to the east of Route 747 (Lot 2) and the 13.6-acre parcel west of Route 747 (Lot 3). He reasoned that all three parcels have adequate frontage and are of a size, shape and terrain that would allow their separate sale and development. There is no suggestion that the building cannot be supported by 14 acres. Further, as discussed below, claimant has not established that Lot 2 is unsuitable for development in its present state. The Court therefore accepts Golub's approach and will ascribe value to the three separate parcels.
Appraising the two lots as if vacant, Griffin relied upon the same comparable sales as he had in the before situation and concluded that the 18.2-acre East lot was worth the same $50,000 per acre. He valued the West parcel at $45,000 per acre primarily because the road frontage is up to six feet below grade, the angle of the roadway gives the parcel a less efficient triangular shape, and the northern part of the parcel is narrow and separated from the southern part by a drainage ditch. Griffin calculated the total land value after taking as $1,504,000. Golub found indicated values for Lot 1 of $59,000 per acre, Lot 2 of $50,000 per acre and Lot 3 of $47,000 per acre for a total land value after the taking of $1,700,000 (R).
Although Griffin did not specifically value the 14-acre Lot 1, his comparable sales are useful in determining the value of Lot 1 once an adjustment is made to reflect the subject's smaller size. The Court finds that a 5% per year time adjustment across the board is appropriate,(10) as is a 3% downward adjustment to reflect the comparable properties' water and/or sewer service. Griffin's Sales 1-3 must be adjusted by +5% for location to reflect the subject's location on the Route 17K thoroughfare. Further, the Court credits Golub's assessment as to the topography of Sale 8352 and adjusts Griffin's calculation as to the same property (Sale 3) accordingly. The indicated values using all the comparables relied upon by both appraisers, as adjusted in accordance with the above factors, range from $48,475 to $62,995 with the median five values bracketed between $55,500 and $60,275. The Court finds the per acre land value of Lot 1 after the taking to be $58,000 or $820,000 (R) ($58,000 per acre x 14.12 acres).
Lot 2 is markedly dissimilar to the East and West lots as appraised by Griffin. Therefore, the Court will rely exclusively on Golub's comparable sales. Golub appropriately selected relatively smaller parcels for purposes of comparison. However, all the properties were larger than Lot 2, which should have resulted in positive adjustments rather than the negative ones indicated on Golub's grid (Ex A, at 65).(11) Lot 2 has ample frontage but its triangular shape as compared to the rectangular shape of Sales 7871 and 7872 justifies a small downward adjustment (-10%). The Court finds an indicated value for Lot 2 of $58,000 per acre or $260,000 (R) ($58,000 per acre x 4.49 acres).
Two of Golub's comparable sales for Lot 3 required adjustments in excess of 40% and are not considered. Applying the same adjustments for time, location, size and utilities to the appraisers' remaining eight comparable sales, and accepting Golub's -10% adjustment for topography relative to the sale relied upon by both appraisers (Golub's Sale 6362/Griffin's Sale 2), the adjusted values for Lot 3 range from $39,784 to $51,000. The sales are concentrated more heavily among the higher values. Consequently, the Court finds an indicated value of Lot 3 of $47,000 per acre or $640,000 (R) ($47,000 per acre x 13.61 acres). The total indicated land value for the entire property is $1,720,000 (R).
The analysis of the after value of the improved property hinges on the impact, if any, of the reduction of the west side yard on the utility of the building. The parties do not dispute that the reduction in the west side yard had some effect on the use of the west side overhead doors. Claimant's engineer, Paul McCreary, and defendant's engineer, William Fitzpatrick, agree that the depth of the west side yard is insufficient to permit, solely on claimant's property, the most efficient reverse maneuvering of a large tractor trailer to the northwest overhead doors.(12) They likewise both acknowledge that the maneuver can be accomplished utilizing the travel lanes of Route 747. As depicted in a video introduced into evidence, the back-up maneuver would require a truck heading southbound on Route 747 to reverse on the southbound travel lane, cross the center line and back across the northbound lane onto the property (Ex 32).
The issue is to what extent the difficulty created by the taking reduces the value of the property. In support of its claim that the utility of the building was diminished, claimant relies on McCreary's conclusion that use of the highway to access the northwest doors was "highly unsafe" (T [11-13-08], at 22) and Griffin's testimony that it is "highly questionable whether you could flow materials east to west in a manufacturing line as the cranes were set up to do" without access to the west doors (T [12-9-08], at 133). Griffin's opinion is manifested in the sales comparison approach as a 10% negative adjustment with respect to each comparable and in the income approach as a 10% reduction in market rent.
Fitzpatrick opined that at most, the reduction in the depth of the yard caused a slight loss of convenience for the largest trucks accessing the west side doors, but that it did not constrain a truck's ability to load and unload. He testified that the use of the public roadway and the type of maneuver required to access the west side doors is routine and expected. He added that, from a traffic engineering perspective, the taking and construction improved the safety and efficiency of access by adding curb cuts along Route 747 and by creating a signalized intersection. Fitzpatrick concluded that for operational uses and potential development, the addition of the new Route 747 was advantageous.
Defendant further asserts that, even if there was no effective access through the west side overhead door, the utility of the cranes would not be seriously diminished. The doors on the east side of the building, including one which provides access to the building-wide 72' bay of the vacant space, were unimpeded by the taking and the direct access to the east side of the property created by the State's modifications may have even improved the utility of those doors. The cranes could be used for movement of materials and products throughout the space. As claimant's engineer acknowledged, a manufacturing or assembly line process fully utilizing the cranes could be set up in a "U"configuration with materials received and products shipped out of the east door.
A partial taking does not itself cause a consequential loss. The claimant must establish its entitlement to damages "based upon either the opinion of an experienced, knowledgeable expert * * * or on actual market data showing a reduction in the value of the remainder as a result of the appropriation" (Zappavigna v State of New York, 186 AD2d 557, 560 [2d Dept 1992]).
The Court has considered all the testimony and evidence, including photographs and the video depicting the tractor trailer executing a back-up maneuver. Clearly, it is still feasible for a tractor trailer to back up to the northwest overhead doors. The Court does not agree with the assessment of claimant's witnesses that such a maneuver has been rendered so difficult that access to the west doors has been essentially eliminated. Moreover, even if the northwest doors were rendered obsolete, those doors do not provide the only access to the building. Each interior bay has at least one functioning overhead door. The 72' bay of the vacant space can be accessed from the east.
The Court nevertheless cannot completely disregard the fact that the reduction of the west side yard made access to the vacant space from that side of the building more difficult than it had been before the taking. Under the current interior configuration, the 72' bay has overhead doors on the east and west with building-width crane rails running between them. Notwithstanding the myriad of uses that defendant suggests would be fully functional with only the east door, access from one side does not maximize efficiency and utility to the same degree as access from both sides, particularly since the linear crane system is one of the building's principal assets. The Court is satisfied that the best use of the facility has been somewhat impaired due to the diminished area on the property for maneuvering vehicles. Accordingly, the Court will apply a small adjustment to reflect the loss of that efficiency.
As for access to the remaining west side overhead doors, the presence of the raised foundation already substantially limits west side access to Stella's space. Further, although McCreary characterized truck access to Polich's west side doors as more difficult, claimant did not establish whether and to what extent the reduced area would significantly hamper access to the Polich space. The Court is not persuaded that the reduction in the side yard had any significant impact on the potential use of Stella and Polich's west side doors. Likewise, although there was testimony as to a possible reduction in the number of parking spaces, claimant did not establish that the total parking area, paved and unpaved combined, was reduced by the taking.
Sales Comparison Approach
The Court has considered both Griffin's and Golub's comparable sales with appropriate adjustments to Griffin's sales to account for the 5:1 Land to Building ratio. A -5% adjustment will be made to account for the reduced west side yard; the remaining adjustments are as they were in the analysis of pre-taking value. Griffin's Sale 5 required a 43% net adjustment and will not be considered. Furthermore, Griffin's Sales 8 and 9 and Golub's Sales 7074 and 7669 required a net adjustment of between 30% and 34%. As such, they are of marginal utility as comparables and have been given less weight than the remaining sales. The adjusted values range from $19.66 to $38.69 with the three lowest values derived from sales with net adjustments of 30% or greater. The Court finds an indicated value of $28.00 per square foot or $3,376,500 (R) ($28.00 per square foot x 120,590 square feet).
Lerner and claimant's rental agent, Bryan Lewis, testified that they showed the vacant space to a number of industrial and warehouse users before, during, and after the construction. The space remained vacant until 2007 when a month-to-month tenant was found for 20,000 square feet, which is less than half the space at $5.00 per square foot. In the interim, Polich and Stella renewed their leases for new five-year terms at higher rents, although they were given rent abatements for the period of the construction. Griffin relied upon the new rents in the Stella and Polich spaces as evidence of a 12.75% increase in market rent over the 5-year period between the taking and 2007. He concluded that the rent for the vacant space should have been $5.70 by 2007 and that the $5.00 actual rent in 2007 reflected a 10% diminution on the market rent of the entire building, an effect he attributed primarily to the reduction in the west side yard.
Accepting that the Stella and Polich rents provide a sufficient basis to find an increase in market rent of 12.75% over five years, Griffin's conclusion that the overall rent in the building fell by 10% overstates the effect of the taking. It is evident from the increase in Polich and Stella's rents that the taking affected only the vacant space, 47,965 of the 120,590 square feet, or less than 40% of the building. That rents in 40% of the building failed to keep pace with a 12.75% increase in the market at best translates into a 5% decrease in overall market rent when extrapolated to the entire building (40% x 12.75%).
A 5% reduction in rental income yields an after value of $3,736,685 ($586,750 reduced by 5% = $557,412.50, reduced by 5% [vacancy and credit loss] = $529,541.88 - $148,400 [expenses] = $381,141.88 ÷ 10.2% [capitalization rate]). Considering both the sales comparison and income approaches, the Court finds an indicated after value of Lot 1 of $3,450,000.
Packaged Sale Discount
In reaching a final value, Golub discounted the indicated value of Lot 1 by 15%. He explained that a discount may be taken from the total property value, where there is a hypothetical packaged sale of disparate assets, in recognition that the buyer may be interested in some, but not all, of the assets and would have to be induced by the discount to purchase the entire package. He reasoned that, in this case, the primary appeal of the remainder property here after taking was as a potential development site and more buyers would be interested in the vacant parcels than the factory building. Thus, a buyer faced with purchasing all three assets would be willing to pay full price for the vacant parcels, but would discount the factory building in reaching a final package price.
At trial, claimant elicited testimony from Golub as to his rationale for applying the discount only to the value of Lot 1, not to the vacant lots. However, claimant's appraiser did not apply any discount to account for a package sale. In the absence of a reasoned opinion that the entire value should have been discounted by some percentage, the Court will adopt Golub's analysis and apply the 15% package sale discount to Lot 1. The net value of Lot 1 after the discount is $2,932,500 (R) ($3,450,000 - 15%). Together with the value of the two vacant lots ($900,000), the total after value of the property is $3,832,500 with $1,720,000 attributable to the land and $2,112,500 attributable to the building.
Cost to Cure
The "cost to cure" is an appropriate measure of compensation where an item of damage caused by the taking negatively affects the market value of the property and can be cured at a cost less than the diminution in value attributable to the damage. In that case, the claimant is required to mitigate its consequential damages and will recover the cost to cure rather than the diminution in value of the uncured property. The "costs to cure" are merely an alternative to consequential damages and may not be awarded where there is no basis for an award of consequential damages (see Hylan Flying Serv. v State of New York, 49 NY2d 840, 841-842; Mayes Co. v State of New York, 18 NY2d 549).
The items delineated by claimant as damages that may be cured at a cost less than their negative effect on value are: (1) remediation of drainage issues created by the construction of Route 747; (2) future consulting and municipal costs and installation of screening to meet the requirements of the Town of Montgomery's zoning ordinance; (3) remediation of the replacement parking areas to the north and south of the building; (4) fencing to address security issues created by the property's new exposure along Route 747; and (5) replacement of monitoring wells.
Drainage Issues: Lots 2 and 3
John O'Rourke, a licensed engineer with the firm of Lanc & Tully, testified on behalf of claimant. He observed ponding on the southern end of the property on both sides of the new highway. He traced the condition on the east side of the highway to the improper installation of the system designed to drain stormwater runoff created by the elevation of the new highway and to the lack of a culvert to divert an existing stream which flows under the roadway from the west side (Exs 30, 31). He attributed the standing water on the west side of the highway to a discharge pipe which, in his opinion, improperly emptied onto open ground. In order to correct the drainage issues, O'Rourke indicated that the drainage pipe running under Route 747 would have to be excavated and raised to the correct pitch to direct flow from the east side to the west side of the highway and into a collection system for discharge into an existing stream to the north. He estimated the cost of correcting the drainage issues to be $40,000 to $50,000 (Ex 30).
Michael Schaefer, the Department of Transportation's design manager for the project, testified that he visited the property on June 24, 2008, one day after a rainstorm in which 1.57 inches of rain fell in a two-hour period (Ex M). Referring to photographs taken June 23, 2008, just after the rain (Ex K) and at the time of his visit 24 hours later (Ex L), Schaefer testified that some ponding existed during the rainfall, but by the time of his visit the following day, the water had largely dissipated. What standing water remained was either within the State's right-of-way or in areas unaffected by the construction.The cost to cure is a proper measure of damages only where the claimant has the ability to cure the condition (Donaloio v State of New York , 64 NY2d 811, affg 99 AD2d 335). The only solution claimant has proposed, and for which an estimated cost was provided, requires the State to correct the drainage system on the highway right-of-way. No amount of compensation would give claimant the ability to effectuate the repair. If a cure of the drainage condition on the east side of the highway is possible without entry onto the State's right-of-way, the parties presented no evidence of it. Thus, the cost to cure cannot be relied upon as an appropriate measure of consequential damage.(13)
Absent a cost to cure remedy, claimant's damages would be determined by the diminution in market value attributable to the condition. In advancing the cost to cure as the appropriate measure of damages, Griffin did not evaluate the effect of the drainage condition on the value of the West lot/Lot 3. Although he does attempt to substantiate a diminution in value of four acres on the east side of the highway,(14) he did not provide the Court with a valuation of the 18-acre East lot assuming the rear four acres are wet. Further, Griffin's conclusion that the four acres are worth "less than $10,000 per acre" (Ex 45, at 43, 47) is based solely upon a comparison to sales of parcels comprised of designated wetlands. Claimant's suggestion that Lot 2 will inevitably be designated a wetland is speculative. Griffin does not indicate, by way of appropriate adjustments, the degree to which the sales are otherwise comparable to the subject, or the extent to which the presence of wetlands impacts the properties' values vis a vis the subject. Based upon the information presented at trial, the Court could not determine the impact of ponding on the affected acres' value. Thus, claimant failed to carry its burden to furnish a basis upon which a reasonable estimate of its purported consequential damages could be made (see J.W. Mays, Inc. v State of New York, 300 AD2d 545, 546-47, supra; Mil-Pine Plaza v State of New York, 72 AD2d 460, 464).
In any event, having heard the testimony of the witnesses and upon consideration of all the evidence, including the photographs submitted by both parties, the Court is not convinced that the construction of Route 747 created a condition on the southern end of Lots 2 and 3 that diminishes the value of the property. Although water clearly accumulates on portions of the property adjacent to Route 747 during rain events, it apparently drains or evaporates in a fairly short period of time thereafter. The presence of water is nothing more than a transient condition and does not significantly impact the development potential of the property.
Claimant's assertion that the property now has frontage along Route 747 and is therefore more exposed to the risk of theft and vandalism does not entitle it to recover the cost of a fence along the property line. Claimant has not demonstrated that the property's frontage on Route 747 is a deficiency that adversely impacts its market value or that could be cured by the installation of a fence. A fence along the highway frontage would constitute an improvement, not a remedy for a defect caused by the taking, and therefore does not form the basis for a claim of damages.
Claimant maintains that the new frontage along Route 747 does not comply with certain zoning requirements and a variance would be required for any future site approval. It seeks damages in an amount estimated by McCreary as the cost of obtaining such a variance including application fees, legal and engineering costs and required screening along the highway. Claimant has failed to meet its burden of demonstrating its entitlement to these costs. Claimant's appraiser valued the property as if cured and provided no separate analysis quantifying the impact of the alleged need for variances on market value. Absent evidence from which the Court can determine that the cost to cure the defect is less than the diminution in market value attributable to that defect, it has no basis to award cost to cure damages.
Claimant acknowledges that the property was already nonconforming along its boundary with Route 17K at the time of taking. As a result, much of the estimated $150,000 in planning costs, including the application fee and legal and engineering costs, would have been required regardless of the taking (cf. Ross v State of New York, 89 AD2d 709 [the expense of obtaining a variance allowed as an element of consequential damages where minor violation of zoning regulation resulted from taking]). Claimant's witnesses did not provide proof of the extent to which the expenses were attributable to the nonconformity along Route 747, as opposed to more general costs that would have been associated with any zoning or planning application. The sole exception to this is evidence that the new frontage along Route 747 is required to be screened with a double row of trees. Claimant's appraiser estimated the cost of the trees at $64,000. The Court finds that the cost to cure that deficiency is compensable.
Parking Lot Defects
Claimant asserts it suffered $140,000 in consequential damages attributable to the purported defects in the front and rear parking lots. The Court accepts claimant's proof that improper surfacing of the front parking lot resulted in a "birdbath"or depression in the pavement in which rain water and runoff from the newly-elevated roadway pools. The Court further finds that the rear parking area was constructed below the existing grade and, therefore, collects water contributing to maintenance and safety issues. The repair of the parking lots is compensable as a cost to cure (see Leeny's v State of New York, UID #2006-019-001, Claim No. 100514, Lebous, J. [Feb, 10, 2006] [cost of repaving]; Moore v State of New York, UID #2000-004-007, Claim No. 98464, Hanifin, J. [Sept. 7, 2000] [cost to restripe parking lot]), and McCreary's estimate as to the cost of remedying those defects is reasonable.Monitoring Wells
Griffin testified that the State paved over three monitoring wells on the property. The Court includes the $7,000 estimated cost to replace the wells as a cost to cure.Fee Taking Summary
The Court finds the following damages attributable to the fee taking:
|After Value as Cured|
|Less:||211,000||Cost to Cure|
Claimant's total damages from the fee taking are $378,500 ($4,000,000 - $3,621,500), including $230,500 in stipulated direct damages and $148,000 in consequential damages.Temporary Easement
Direct damages for a temporary easement are measured by the fair market rental value of the lands subject to the easement. Damages may also include a temporary diminution in value of the remaining property caused by the existence of the easement (Great Atlantic & Pacific Tea Co. v State of New York, 22 NY2d 75). Indirect damages are only warranted when there is some actual interference with the owner's use of its property (Village of Highland Falls v State of New York, 44 NY2d 505, 508).
Claimant premises its entitlement to indirect damages arising from the temporary easement on the "excess vacancy" between 2002 and 2007 which claimant asserts was due to prospective tenants' uncertainty over the State's anticipated use of the temporary easement. According to Lewis, during the 4-year period between the taking and the construction, he attempted to explain to several prospective tenants the State's plan to ensure access to the property during the construction but they "couldn't get it" (T [11-13-08], at 133). Lewis acknowledged that generally, the existence of a highway construction project makes it much more difficult to lease a site. Given that access was to be maintained along the east side of the building, the opposite side from the construction and temporary easement, it seems more likely that claimant's inability to rent the property during the temporary easement period was due to the general inconvenience of the construction itself (see Welbilt v State of New York, 80 Misc 2d 439 [Ct Cl 1975] [inconvenience caused by construction associated with an appropriation is not compensable]) or the permanent change in the west side access, rather than apprehension over the use of the easement itself (cf. McCurdy v State of New York, 10 NY3d 234 [constant threat of interrupted access or impact on marketability may be compensable]).
There was no showing that the temporary easement otherwise impacted the use of the property. The easement was not exclusive and access to the east side of the property was maintained throughout the period of the easement. The single instance in which Lerner was temporarily delayed by the presence of paving equipment and was forced to drive across the adjacent pizzeria parking lot to access the property amounts to nothing more than a minor inconvenience and is insufficient to support an award of consequential damages.Rent Concession
Although Polich and Stella agreed to a rent increase for the 2006-2011 period, claimant gave them a concession of $750 per month, the amount of the increase, during the construction of Route 747 (Exs 8, 11). According to the letters advising the tenants of the concession, the credit was to compensate for the inconvenience and hardship suffered by them as a result of the construction of the new highway. The inconvenience of a highway construction project is not, in and of itself, compensable (see Welbilt v State of New York, 80 Misc 2d 439, supra).Conclusion
Based upon the before and after valuations indicated herein, total damages are $378,500 (fee taking) and $16,250 (temporary easement). The Court finds that claimant is entitled to an award of $394,750 for all damages, with appropriate interest thereon from October 2, 2002, the date of taking, to the date of this decision and thereafter to the date of entry of judgment herein, pursuant to CPLR 5001 and CPLR 5002. Inasmuch as the notice of acquisition was served by certified mail, return receipt requested, and not by personal service (EDPL 514[B]; see Sokol v State of New York, 272 AD2d 604), there shall be no suspension of interest. It is further ordered that, to the extent that claimant has paid a filing fee, it may be recovered pursuant to Court of Claims Act §11-a(2).
The award to claimant herein is exclusive of the claims, if any, of persons, other than the owners of the appropriated property, their tenants, mortgagees, and lienors having any right or interest in any stream, lake, drainage, and irrigation ditch or channel, street, road, highway, or public or private right-of-way or the bed thereof within the limits of the appropriated property or contiguous thereto; and is exclusive also of claims, if any, for the value of or damage to easements and appurtenant facilities for the construction, operation, and maintenance of publicly owned or public service electric, telephone, telegraph, pipe, water, sewer, and railroad lines.
All motions not previously ruled upon are DENIED.
LET JUDGMENT BE ENTERED ACCORDINGLY.
October 20, 2009
White Plains, New York
Terry Jane Ruderman
Judge of the Court of Claims
1. Although the claim misstates the year as 2005, there is no dispute that service took place in 2002.
2. The taking maps are not attached to the claim, but are included in the parties' appraisals (Ex 45, Addenda, at 52A). The Court adopts the maps and descriptions as set forth therein.
3. There are some discrepancies as to the total acreage of the property and the square footage of the improvement thereon. The Court adopts the figures used by claimant's appraiser, Gerald Griffin, Jr. (Ex 45).
4. For purposes of this Decision, the lots will be referred to by the last two digits in each tax lot.
5. The northwest corner of the vacant space has one 25-ton and one 10-ton crane; the northeast has three five-ton cranes; and the 72' bay has two 12½-ton and two 25-ton cranes running the width of the building. The two bays in the Stella space each contain a 5-ton rail crane running east-west across the width of the building. A 31-metric-ton and a 10-metric-ton crane run east-west across the Polich space. The concrete wall of the shed also has a crane rail.
6. References to the trial transcript are preceded by the letter "T" and the date of the proceeding.
7. MJM vacated the premises and ultimately was evicted for nonpayment of rent in August 2002 (T [11-12-2008], at 81, 103).
8. Griffin acknowledged at trial that the actual base year taxes were $59,605 (T [2-3-09]: 14; Ex 50).
9. Golub's inclusion of the total 2002 taxes as an expense of the landlord is not appropriate. In 2002, the amount of taxes above $59,600 was paid by the tenants and may be ascribed as an expense to the claimant.
10. Accordingly, the Court applied the following adjustments: Sale 1 (+2%), Sale 2/Sale 6362 (+10%), Sale 3 (+2%), Sale 4 (+15%), Sale 8032 (-3%), Sale 8009 (-3%), Sale 8352 (+4%), Sale 7872 (-8%), Sale 7871 (-10%).
11. Indeed, in Golub's narrative (Ex A, at 61), he indicates that positive adjustments for size are appropriate.
12. Fitzpatrick noted that the ideal distance for a semi-tractor trailer executing a back-up maneuver would be 103 feet, a situation which did not exist before the taking.
13. Although extension of the drainage system on the west side of the highway may be possible entirely on claimant's property, neither party provided a separate estimate of that cost.
14. Griffin testified at trial that his treatment of the rear portion of the property as a contribution to the improved lot was based upon his review of land use, zoning and environmental requirements (T[12-10-08], at 169).