Matter of Metropolitan Transp. Auth.
2011 NY Slip Op 52474(U)
Decided on November 28, 2011
Supreme Court, Queens County
Rios, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 28, 2011
Supreme Court, Queens County

In the Matter of the Application of the Metropolitan Transportation Authority, relative to acquiring title in fee simple absolute to certain real property and permanent and temporary easements, required for the EAST SIDE ACCESS PROJECT BLOCK 183, LOT 185, BLOCK 183, LOT 189, BLOCK 183, LOT 373 & BLOCK 183, LOT 375 (FEE), BLOCK 183, LOT 250 (PERMANENT & TEMPORARY EASEMENTS) as said property is shown on the current Tax Map of the Borough of Queens, City and State of New York

Charles S. Webb III, Bergen & Webb, LLP; Representing MTA
James G. Greilsheimer & Cynthia Lovinger Siderman; Representing the Claimant

Jaime A. Rios, J.

In this condemnation proceeding, the former fee owners 43rd Street Realty and Tomislava Grgas (claimants) move for an order determining the value of the properties taken by eminent domain (FN1).

This is a dispute over the valuation of two properties acquired by the Metropolitan Transit Authority (MTA) through eminent domain for the expansion of the Sunnyside Rail yard as part of the East Side Access Project connecting the Long Island Rail Road directly to the Grand Central Terminal in Manhattan. The properties are known as 38-38 43rd Street, Sunnyside (Queens Block 183, Lot 185) ("Lot 185") and 38-40 43rd Street, Sunnyside (Queens Block 183, Lot 189) ("Lot 189"). The properties are situated adjacent to one another on 43rd Street. *2

Lot 185, previously owned by 43rd Street Realty, consists of a two-story and partially above grade basement storage, warehouse, parking and office building situated on a site area of 23,000 square feet (S/F). The building contains a total of 30,240 S/F of gross area as follows: 7,560 S/F of partially above ground basement space, 15,120 S/F of first floor space and 7,560 S/F of second floor space. The basement and first floor front, with ceiling heights of about 20 feet, are used for warehouse/storage and truck parking and the first floor rear and second floor, with ceiling heights of about 14 feet, are used primarily for office space with some warehouse areas. There is on-site parking at the rear of the site for 13 cars. The building was erected circa 1990 and is in average well maintained condition.

Lot 189, previously owned by Tomislava Grgas, consists of a two-story and partially above grade basement storage, warehouse, parking and office building situated on a site area of 12,725 S/F. The building contains a total of 28,050 S/F of gross area as follows: 10,560 S/F of partially above ground basement space, 9,000 S/F of first floor space and 8,490 S/F of second floor space. The legal use of the basement, which has 13 foot ceilings, is accessory storage and parking, the first floor, with 20 foot ceilings, is warehouse and accessory parking and the second floor, with 10 foot ceilings, is office use. There is additional on-site parking at the rear of the site for 5 cars. The building was erected circa 1990 and is in average well maintained condition. Both lots are located in an M1-1 Manufacturing Zoning District and are one block south of Northern Boulevard and the southeastern border of Long Island City (just north of Sunnyside). The lots are ½ mile from three different subway lines and four different subway stations, 1 ½ miles from two different Long Island Railroad stations, 1 1/4 mile from the Long Island Expressway and within a few blocks of certain bus routes.

The issue before the Court is the fair market value of the properties at the time of the taking on March 18, 2008 ("the vesting date"). On the vesting date, both lots were owned respectively by the claimants, who leased the properties for purposes of income generation. Prior to the valuation trial, the court, pursuant to EDPL 510[a] conducted an on-site inspection of the properties. Thereafter, the parties exchanged appraisal reports. The claimants' appraiser determined that the highest and best use for each property was as an owner-occupied warehouse/parking and office building and valued Lot 185 at $7,000,000 and Lot 189 at $6,200,000. The MTA's appraiser concluded that the highest and best use of the properties was as a multi-tenanted facility and valued Lot 185 at $4,710,000 and Lot 189 at $4,510,000. Each appraiser issued rebuttal reports (*3)responding to the other's findings. A trial was held in Queens County Supreme Court before Rios J. on June 2, 21, 22 and 23, 2011.


Testimony
At trial, MTA produced its appraiser, Michael Haberman (Haberman) who testified that the highest and best use of the properties was as multi-tenanted income producing buildings. Haberman explained that the properties were already divided into multiple units and were too large for use by an owner-occupant. Haberman further explained that owner-occupied industrial properties were typically 3,000 to 8,000 square feet and that the properties here were between 28,000 and 30,000 square feet, and thus usually purchased for investment. Haberman further testified that due to the economic recession at the time of vesting, there were more investors in the market than owner-occupants and it was more difficult for owner-occupants to obtain the necessary funds from prospective lenders because banks would look at the income of the properties to figure out its worth. Haberman also testified that there would be substantial costs for renovation for use by an owner-occupant, stating that in order for the properties to be used by a single owner-occupant, they would have to remove walls, bathrooms, kitchenettes, separate heating systems, utilities and meters. Thus, he testified, that the properties' "as is" conditions were not physically configured for owner-occupancy.

Haberman further testified that because both lots were already income producing properties and because their best use was their continued use as multi-tenanted, investment properties, the income approach (as opposed to the sales approach) is the preferred valuation methodology. Haberman, using the income approach and an 8% capitalization rate, valued lot 185 at $4,605,000 and lot 189 at $4,505,000.

In Haberman's sales comparison approach, he used five comparable sales. Only one was owner-occupied and it consisted of a 25,549 S/F area. He chose the comparable sales based on their location, condition and size. Using this approach, Haberman concluded a value of $4,840,000 for Lot 185 and $4,630,000 for Lot 189.

Haberman's values under the two approaches were closely aligned, and therefore, he gave them equal weight. Haberman testified that his final value, as averaged, was $4,725,000 for Lot 185 and $4,570,000 for Lot 189.

Anthony Troiano, the claimants' appraiser, testified that (*4)the highest and best use of the properties is as mixed-use industrial/storage warehouse and office buildings which are purchased and used by owner-occupants. Troiano stated that since the supply of industrial buildings that can be used by owner-occupants, such as the properties here, are dwindling, they are in great demand and command a premium price. Troiano further testified that the properties, with respect to their location and inclusion of a combination of warehouse, office, parking and open space, are particularly well-suited for use by owner-occupiers. Troiano explained that the properties are well located on a two-way street, a block south of Northern Boulevard and north of Skillman and Barnett Avenues with easy access to the BQE and the LIE and the 59th Street Bridge, the properties have high ceilings on the first floor and basement and good quality office space upstairs, good parking, and drive-in truck bays.

Troiano, relying on the sales comparison approach, used nine sales, eight of which were owner-occupied, to determine the value of the properties. Troiano stated that owner-occupied properties sell at a premium and thus represent the highest and best use of the property. Using the sales approach for owner-occupied property, Troiano valued Lot 185 at $7,100,000 and Lot 189 at $6,300,000. Under the income approach, and using a 6.25% capitalization rate, Troiano relied upon leases which investor-owners had entered into with their tenants and arrived at values of $5,800,000 for Lot 185 and $5,400,000 for Lot 189.

Troiano testified that substantial improvements would not have to be made for use by owner-occupants. Troiano also noted that there is a market for owner-occupied buildings of more than 8,000 S/F. Troiano also testified that the sales approach is the most reliable approach in valuing the owner-occupied properties.

Discussion

Condemnees are entitled to be paid just compensation based upon the highest and best use of the properties regardless of whether that use was the actual use at the time of taking (see In re Town of Islip, 49 NY2d 354 (1980); In re County of Suffolk, 47 NY2d 507 (1979); St. Agnes Cemetery v State of New York, 3 NY2d 37 (1957); Chem. Corp., Ltd. v Town of East Hampton, 298 AD2d 419 (2d Dept., 2002); 627 Smith St. v Bureau of Waste Disposal, 289 AD2d 472 [2d Dept., 2001) app dismissed 98 NY2d 646 (2002) app denied 98 NY2d 611 2002). The burden is on the claimants to prove the properties' highest and best use (see IIT Realty Corp v State, 120 AD2d 706 (2d Dept., 1986); Chase Manhattan Bank v State, 103 AD2d 211 (2d Dept., 1984). The highest and best use of the properties has to satisfy a four part test. The use must (*5)be (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive (see The Appraisal of Real Estate, at 278 (13th edition)).

Here, the claimants met their burden of proving the highest and best use of the properties was as mixed-use industrial storage/warehouse and office buildings for owner occupancy. Troiano testified that this use satisfies all four requirements for highest and best use because of its location and accessibility to major thoroughfares, the rear parking and drive-in truck bays, the high ceilings on the first floor and the basement that was used for storage, the quality office space with good ceiling height, the lack of supply of similar properties, and the comparable sales in the area. To establish that there is a market for owner-occupied buildings in Queens, Troiano provided 8 comparable owner-occupied sales. While Haberman disagreed that the properties met the fourth prong of the test, maximally productive, Haberman did concede that owner-users commonly pay premiums for buildings versus those purchased by investors for leasing purposes.

Having determined that the highest and best use of the properties is as mixed-use industrial/storage warehouse and office buildings which are purchased and used by owner-occupants, it follows that the comparable sales method would better indicate the value of the properties (see Allied Corp v Town of Camillus, 80 NY2d 351 (1992). . The Appraisal of Real Estate, 13 edition (Chicago: The Appraisal Institute, 2008)), which both appraisers recognized as the leading treatise in the appraisal field, states that when data is available, the sales comparison approach is the most straightforward and simple way to explain and support an opinion in market value. It further states that the sales approach is the most reliable for owner-occupied properties:

Typically, the sale comparison approach provides the most credible indication of value for owner-occupied commercial and industrial properties, i.e., properties that are not purchased primarily for their income-producing characteristics. These types of properties are amenable to sales comparison because similar properties are commonly bought and sold in the same market (p.300).

Accordingly, the court will not consider the "income approach", which is not considered as reliable because of its speculative nature. With respect to the comparable sales method, market value may be determined with evidence of recent sales of comparable properties (see Matter of General Elec. Co. v Town of Salina, 69 NY2d 730 (1986)). By its very definition, a (*6)comparable sale need not be identical to the subject property. A comparable sale need only be sufficiently similar to serve as a guide to the market value of the property, notwithstanding differences between these comparables and the property (see Matter of General Elec. Co. v Town of Salina, supra; Matter of Great Atl. & Pac. Tea Co. v Kiernan, 42 NY2d 236 (1977)). Then, objective data may be used to adjust evidence of sales of comparable properties in order to more accurately reflect the market value of the subject property (see FMC (Peroxygen Chemical Div.) v Unmack, 92 NY2d 179 (1998)). "Differences between the subject property and alleged comparables are the proper subject of adjustment by expert witnesses, and the degree of comparability becomes a question of fact" (Kastelic v State of New York, 29 AD2d 803 (1968)). It is within the court's discretion to accept or reject expert testimony in determining the value of condemned property (see In re CNG Transmission, 273 AD2d 726, 728 (3d Dept., 2000); Matter of City of New York, 98 AD2d 166 (2d Dept., [1983)).

In declining to afford any weight to the MTA's comparable sales No.'s 1, 2, 3 and 4, and the claimants comparable sale number 4, the court notes that these sites are not owner-occupied and thus, dissimilar to the properties' highest and best use. Moreover, the court finds that claimants comparable sales number 1, 2, 5, 6, and 8 are also dissimilar to the subject properties in that the comparables' lot sizes are at least half the size. The court is accordingly left with one comparable sale from the MTA upon which to rely, i.e., sale # 5 at 25,549 S/F. The court will rely on Troiano's comparable sale # 3, at 41,650 S/F, sale # 7 at 27,600 S/F and sale # 9 at 19,000 S/F as these are the most comparable to the properties given their larger size. These comparables are in a mixed residential-industrial area with uses comparable to the area where the subject properties are located.

The MTA's comparable sale # 5, constructed in 1957, is a 25,549 S/F one-story industrial building with 18 foot ceiling height and 5 loading areas. There is no office space and it is located in an area that is less convenient to commercial thoroughfares It sold in late 2007 for $5,150,000 (or $201.57 a S/F). Haberman adjusted sale # 5 by a positive 1 % for time to reflect growth in the market between the date of sale and vesting. For Lot 185, Haberman adjusted the sales price by a negative 5% for location based solely on the fact that the property at issue abuts the Sunnyside railroad yard, and a negative 5% for utility to arrive at an adjusted price of $183.23 a S/F. For Lot 189, Haberman adjusted the sales price by a negative 5% for location and a negative 10% for utility to arrive at an adjusted price of $173.05 a S/F. In rebuttal, Troiano noted that sale #5 had no on-(*7)site parking and no office space and that a positive adjustment should have been made.

The claimants' comparable # 3, constructed in 1966 and located in Maspeth, is a one and part-two story warehouse and office building, with superior, on-site parking for 30 cars, which caused Troiano to make a negative 5% adjustment (for both lots) and no basement, which warranted a negative 10% adjustment (for both lots). Sale 3 is further from the commercial thoroughfares so Troiano gave it a positive 10% adjustment. The building is also older and in inferior physical condition, so Troiano gave it another 10% positive adjustment. Finally, because the building had only a nominal amount of office space (7%), Troiano gave it another positive 10% adjustment. The property sold in September of 2007 for $4,875,000 or $199 a S/F. In rebuttal, Haberman stated, inter alia, that Maspeth is considered one of the best industrial locations in Queens and the positive 10% adjustment by Troiano was incorrect.

The claimants' comparable # 7, constructed in 1933, is a one and two-story warehouse, located within a mile of the properties and occupies two corners. Troiano stated that it is superior in overall location and mandated a negative 10% adjustment. Because the ceiling height was 28 feet, Troiano made a positive 5% adjustment. No office space, or a nominal amount, led to a positive 10% adjustment and no basement led to a negative 10% adjustment. The superior on-site parking caused Troiano to make a negative 5% adjustment. The property sold in July of 2008 for $7,000,000 or $254 a S/F. In his rebuttal, Haberman stated, inter alia, that Troiano failed to make a negative adjustment for the building's proximity to Queens Boulevard and ease of access to Manhattan.

The claimants' comparable # 9, constructed in 1985, is a mostly one and part two-story warehouse and office building, on a corner with frontage on two streets, with 23 foot ceilings which caused Troiano to make a negative 5% adjustment. There is no basement which caused Troiano to make a negative 10% adjustment and about 12% office space which led to a positive 5% adjustment. While sale 9 is closer to the LIE, it is further from public transportation. The property sold in August of 2006 for $4,250,000 or $224 a S/F. In rebuttal, Haberman stated, inter alia, that Troiano did not properly make a negative adjustment for its superior overall location.

Initially, the court finds that the location of the properties with access to major thoroughfares is a distinct advantage and outweighs any limited negative impact the railroad tracks in the [*8]rear of the properties may have. Troiano noted that the 80 feet buffer and that the curvature of the tracks adjacent to the rear of the properties limits the speed of any passing trains and that this immediate part of the tracks was used for the turn-around of trains and not for passenger or freight activities. Troiano testified that the train tracks have no effect on the operation of an industrial building.

Thus, with respect to the MTA's comparable # 5, the court disagrees with the finding that the negative adjustment was warranted for the properties' proximity to the railroad tracks. In addition, the court disagrees with the negative 5% adjustment for utility where its office space is inferior, there is no parking and it was constructed circa 1957. Thus, without adjustments, the price of comparable #5 remains at $201.59 a S/F.

With respect to the claimants' comparable # 3, the court finds that a positive 10% adjustment is warranted for location, a negative 5% adjustment is warranted for size, a negative 5% adjustment is warranted for parking, a negative 10% adjustment is warranted for no basement, a negative 5% adjustment is warranted for inferior office space and a negative 10% is warranted for condition. Thus, the adjusted price totals $ 208.95

With respect to the claimants' comparable # 7, the court finds that the superior location warrants a negative 10% adjustment, that a positive 5% adjustment for nominal office is warranted, that a negative 10% adjustment for no basement is warranted, that a negative 5% adjustment for superior parking is warranted, and a positive 10 % adjustment for inferior condition is warranted. Thus, the adjusted price is $228.60 a S/F.

With respect to claimants' comparable #9, the court finds that the superior location warrants a negative 5% adjustment, that a positive 5% adjustment is warranted for inferior office space, that a negative 10% adjustment is warranted for no basement, and that due to price fluctuation, a positive 1.75% adjustment is warranted. Thus, the adjusted price totals $197.68.

Accordingly, the average square footage, and value assigned by the court, equals $209.18. Accordingly, lot 185, at 30,240 S/F is valued at $6,325,603.20 and lot 189, at 28,050 S/F is valued at $5,867,499.00.

Settle Order on Notice.

Dated: November 28, 2011_________________________

Index No.: 176/08J.S.C.

Footnotes


Footnote 1:The claimants and the condemnor, Metropolitan Transit Authority (MTA) consented to a joint trial.