Opinion
Docket No. 008742-2009 Docket No. 006356-2010 Docket No. 008883-2011
10-26-2012
Re: 5 Dwight Associates v. Township of Fairfield Block 1104, Lot1
NOT FOR PUBLICATION WITHOUT APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
Mala Narayanan
JUDGE
BY FIRST-CLASS AND ELECTRONIC MAIL Steven R. Irwin, Esq.
The Irwin Law Firm, P.A.
Dennis M. Galvin, Esq.
The Galvin Law Firm
Dear Counsel:
This letter constitutes the court's opinion after trial in the above-referenced matters. Plaintiff ("Dwight") challenges the assessments imposed by defendant ("Fairfield") on property located at 5 Dwight Place, designated as Block 1104, Lot 1 ("Subject") for tax years 2009 though 2011. The assessment for each tax year was as follows:
+------------------------+ ¦Land ¦$1,067,000¦ +-------------+----------¦ ¦Improvements ¦$3,270,300¦ +-------------+----------¦ ¦TOTAL ¦$4,337,300¦ +------------------------+ The Chapter 123 ratio and the upper/lower limits for each tax year were as follows:
+------------------------------------------------------+ ¦Tax Year ¦Average Ratio ¦Upper Limit ¦Lower Limit ¦ +----------+---------------+-------------+-------------¦ ¦2009 ¦100.00% ¦100.00% ¦85.00% ¦ +----------+---------------+-------------+-------------¦ ¦2010 ¦100.64% ¦115.74% ¦85.54% ¦ +----------+---------------+-------------+-------------¦ ¦2011 ¦103.90% ¦119.49% ¦88.31% ¦ +------------------------------------------------------+
Each party presented an expert in the field of real estate appraisal who was accepted by the court as such and their respective reports were entered into evidence without objection. Dwight also presented testimony of Fairfield's assessor, Dwight's third-party property manager, and a salesperson from Dwight's real estate broker.
Also in evidence were Dwight's exhibits as follows: (1) Fairfield's assessor's files pertaining to tax years 2009 through 2011, which in turn, included the Chapter 91 income/expense request for tax year 2009; the property record card for the Subject; and Dwight's answers to Fairfield's interrogatories; (2) rent ledger sheets for the Subject; (3) its expert's corrected grid sheets showing the comparable leases and the adjusted economic rentals for those leases; (4) a copy of the executed lease agreement for the Subject; and (5) photographs of Fairfield's expert's lease comparables from GoogleEarth as used during trial.
The experts agreed that the income approach was the most appropriate valuation method. Prior to the commencement of trial, they also agreed that (i) the vacancy/loss collection factor was 6.5% for 2009; 7% for 2010 and 7.5% for 2011; (ii) the operating expenses were 11% of the gross adjusted rental income for each of the three tax years; and (iii) the capitalization rate was 8% for each of the three tax years. During testimony, Dwight's expert also agreed that the Subject's size was 55,404 square feet ("SF").
Thus, the only remaining issue was the economic rent for the Subject. On this, the experts disagreed significantly in two aspects: (1) Dwight's expert's use of the Subject's pre-assessment lease offering, and (2) Dwight's expert's 15% negative adjustment for the Subject's alleged substandard or inadequate depth of the loading dock area for 53-feet tractor-trailers.
Based upon their respective conclusions of the economic rent their in reports, but taking into consideration their agreement on the three issues and Dwight's agreement on the size of the Subject, each expert's value opinion of the Subject for each tax year was as follows:
+-------------------------------------------------+ ¦Tax Year ¦Dwight's Expert ¦Fairfield's Expert ¦ +----------+-----------------+--------------------¦ ¦2009 ¦$2,881,525 ¦$3,803,600 ¦ +----------+-----------------+--------------------¦ ¦2010 ¦$2,722,800 ¦$3,783,300 ¦ +----------+-----------------+--------------------¦ ¦2011 ¦$2,565,650 ¦$3,791,950 ¦ +-------------------------------------------------+ For the reasons set forth below, the court finds the value arrived at by Fairfield's expert for each of the three tax years is credible, and finds the same as the assessment for each tax year except for tax year 2011, for which the value is $3,791,500. FINDINGS
Prior to the stipulations, each expert's value conclusion as contained in then* reports were as follows:
I. Property Description
The Subject comprises a site of about 3.17 acres. Located centrally in Fairfield's commercial/industrial neighborhood, it is in close proximity to Route 46 and Route 3, and through those highways to interstate highways such as Route 80, thus providing the Subject with convenient roadway access. A drainage easement extends along the north and rear of the parcel. There is also a creek in the rear of the property. It is served with all public utilities.
The Subject is zoned light industrial. Since 2007, it lies in a Special Flood Hazard Area Zone AE (or "areas subject to flooding by the 1% annual chance flood").
The Subject is improved with a one-story industrial/warehouse building occupying about 55,404 SF. It is currently occupied by a single tenant, a trucking/storage company. Built sometime in 1970, it is landscaped in the front, and has a decorative brick face with glass doors and windows. There is on-site parking for about 75 cars and also for trucks.
The warehouse area contains interior ceiling heights which are 22' with the ceiling being metal. The walls and floors are concrete with 40' column spacing. Lighting fixtures are suspended from the ceiling. Heat is provided by gas-fired, ceiling-mounted units, and there is a large hot water heater.
The warehouse area also has office space. Per Fairfield's expert, the air-conditioned finished office area is about 2,750 SF (or 5% of the total warehouse space). Per Dwight's expert, this "main" office area is about 2,600 SF of "average" quality. It is located in the front of the building beyond an enclosed foyer area. It has an open clerical area, five individual private offices, restrooms, and a utility/storage room. The walls are sheetrock, the ceilings are suspended with recessed lights, and the floors are tiled with pad floor coverings. Per Dwight's expert's report, the office is "of low-grade finish." The other office space area is situated in the warehouse area as a partitioned shop office. Per Dwight's expert, the area is about 1,060 SF and is of "low quality." Fairfield's expert testified that the size of other office space (as measured by the size and number of ceiling tiles) is 60 SF.
Thus, while Fairfield's expert concluded the total office space to be 2,750 SF plus 60 SF (5.07%), and warehouse space as 52,654 SF less the 60 SF, Dwight's expert concluded the office space to be 3,660 SF (7%) and warehouse space to be 51,340 SF. Given that Dwight's expert agreed that the total area was 55,404 SF, his percentage of office space equals 6.6% (about 1% more than Fairfield's), which is not a significant difference. The court finds the office space as being between 6% to 6.6%.
There are nine individual loading bays located in the rear and along the east side of the building, with roll-up overhead doors. There are also two floor recessed load level platforms. Both experts disagreed as to the adequacy of the depth of the loading dock area, with Dwight's expert opining that it was significantly inadequate, and Fairfield's expert opining to the contrary because the Subject has been used as a warehouse/distribution center without any physical alterations or configurations since 1972.
Both experts agreed that the Subject's physical condition was generally average. Fairfield's expert agreed that the Subject could be viewed as a "second-generation" industrial building, a generally-accepted term among real estate appraisers to indicate an older building with none of the modern construction standards. Dwight's property manager testified that the landlord expended about $100,000 starting in 2008 until 2010 for general exterior maintenance and repairs (or for its "tender-loving-care") such as landscaping, patching potholes, removing weeds, roof repairs, masonry, and painting, so that the Subject was similar to, and as attractive as, the rest of the neighborhood.
The property manager stated that although these repairs were the tenant's responsibility, the landlord expended its money and resources primarily due to liability concerns.
Both experts agreed that the Subject's highest and best use as vacant and as improved was its current use as a light industrial/warehouse facility.
II. Subject's Lease
For the tax years at issue, the Subject was leased to and occupied by a single tenant, MPD Logistics, pursuant to a ten-year lease commencing November 1, 2001 and ending June 30, 2011. The rent for tax year 2009 (Le, as of November 1, 2008) was $6.20 per SF; for tax year 2010 was $6.31 and was $6.39 per SF for tax year 2011.
In its August 18, 2011 response to Fairfield's Interrogatory #8(a), Dwight stated as follows: "[f]he tenant, MPD Logistics, Inc., MPD Transport, Inc., and Absolut Transportation, Inc. defaulted their lease and they have been month to month."
Beginning January 2007, the tenant began to default on its rent by paying only a portion (about 50%) of the same. Until the lease's termination on June 30, 2011, the tenant's rent arrearages totaled $330,971. Although the landlord sent the tenant several default letters, the property manager was unsure whether legal proceedings were taken against the tenant. Evidently, the tenant was not evicted since its lease was terminated at its contractual termination date. The property manager, who became involved with the Subject in connection with the issues of rent arrearages and property maintenance, stated that the tenant was permitted to stay on because of its good faith efforts to pay rent, the landlord did not want the property to be vacant, and further because the tenant attempted to mitigate losses by obtaining another tenant.
In this connection, sometime in 2009, the landlord hired a real estate broker to market the Subject for lease at an asking price of $5.50 per SF. The property manager claimed that there were no offers due to the size of the building and the apparent insufficiency of the turning range for 53-foot tractor-trailers in the loading dock area, but conceded that the tenant had no complaints in this regard. She stated that the landlord retained an architect to consider dividing the building (with separate entrances, loading docks and utilities) and re-designing the loading docks (such as for instance, extending the loading dock into the building area), but did not pursue it because it would not be cost effective.
On or about June 15, 2010, the landlord hired Colliers International, a real estate brokerage firm to list the Subject for rent. The Subject was listed for $5.00 per SF sometime during August 2010 (thus, post-assessments). The real estate salesperson, who became involved in renting the Subject in 2011, undertook the usual marketing techniques such as advertising, mailings, canvassing, showings and open houses, had several interested tenants but no offers due to the size of the building. He claimed that prospective tenants (but not the current tenant) had expressed concern about the building size and the limited depth of the loading area, and had conveyed the same to the landlord, suggesting a rent reduction. He was aware through the property manager that the landlord had retained an architect to consider dividing the building, and relocating or re-designing the loading dock area, but was not involved in this regard. He testified that the asking rent was reduced thereafter to $4.50 per SF, and then to $4 per SF, and finally to $3.50 per SF in July 2011 for a new tenant, ACE Logistics, Inc. ("ACE"). Colliers International and the new tenant's commercial broker received commission from the landlord, totaling 7%, a normal rate, which was not reduced based on the lease rental of $3.50 per SF,
Among Dwight's exhibits in evidence were two computer print-out sheets with a run date of 06/20/2011, which appear to be a report of the leasing efforts of the Subject. Some entries note that potential tenants were looking to lease an area of 40,000 to 50,000 SF (entries dated 08/10/2010and 03/18/2011), or between 18,000 to 25,000 SF (entries dated 01/26/2010 and 8/17/2010) or the potential tenant was currently occupying 50,000 SF (entry dated 2/2/2010). One entry dated 04/7/2011 states "l[ight] mfg in the home furnishing business. This is a 2ndary facility. They are in other space on a month to month basis. Needs more doors to accommodate 53' trailers." Under the "Subject" heading of this entry is listed "CBRE Steven Beyda 7325 ..." the remainder being cut off. There was no testimony who prepared these entries.
The lease agreement with ACE was for a period of five years and two months. However, rent was for five years (thus two months of free rent), commencing September 1, 2011 at $3.50 and ending August 31, 2016, with annual rent increases of 25 cents, and an option to renew for another five-year term. The lease was "as is" and for the use and occupation of the Subject for "offices, distribution and warehousing" only. Exhibit A to the agreement ("Landlord Fit-Up") obligated the landlord to deliver "mechanicals, electric and bathrooms in good working order" and painting "one office area." However, ACE was to replace dead light bulbs and "repair the one sink and one urinal" which were "currently not working." There were no other negotiated tenant improvements (Exhibit C, "tenant fit-up" was left blank).
ACE also purchased the business of the prior tenant, with one remaining partner of the prior tenant working with and for ACE. This lease of the Subject was contingent upon, and part of, the purchase of the former tenant's business. Simultaneously, as part of the lease with ACE, the lease with the prior tenant was terminated. The property manager claimed that the landlord essentially "wrote-off' the rent losses attributable to the prior tenant.
III Market Rents
Both experts derived market rents for the Subject using comparable rentals. Fairfield's expert's report contained visually clear color pictures of the Subject and each of the comparables. The court also viewed Fairfield's expert's comparables on "GoogleEarth" during his cross-examination.
Dwight's expert's comparables 1 through 6 were consummated leases, comparable 7 was a lease offering as of October 1, 2010, at $6.50 per SF, and comparable 8 was the Subject's lease offering as of August 2010 ($5.00 per SF). All the comparables were located in Fairfield's industrial/warehouse area with sizes ranging from 13,300 SF to 22,000 SF, with one sized at 48,100 SF, and the Subject (comparable 8) sized at 55,000 SF. The consummated lease rentals ranged from $6.55 to $8 for periods commencing in September 2006 to July 2008 and for terms of one-to-five years. Dwight's expert personally inspected and took photographs of the exterior and interior of the Subject (except the aerial view of the Subject which was from Google Maps) and the exterior and/or interior of his comparables leases. He made negative adjustments (either 5% or 10%) for time/market condition; size; office space; ceiling heights; and a uniform negative 15% for access. The net adjusted rents (including the comparable lease offerings) ranged from $4.88 to $6.40 (for 2009); $4.63 to $6.08 (for 2010) and $4.39 to $5.76 (for 2011). He concluded that the Subject's market rent was $5.00 per SF for tax year 2009; $4.75 per SF for tax year 2010; and $4.50 per SF for tax year 2011.
Fairfield's expert utilized five lease comparables (one of which was also used by Dwight's expert), all of which were located in Fairfield, for five-to-seven year terms, commencing in 2008 to 2010, with sizes ranging from 11,869 SF to 15,500 SF, and one sized at 47,000 SF. All of the leases were consummated. The rentals ranged from $6.82 per SF (blended) to $7.75 per SF (flat rates). He made no adjustments for time since the execution dates were proximate to the assessment dates. He provided negative adjustments of 5% or 10% for size and/or office space, -5% for condition to his comparable 3; and +10% for ceiling height to his comparable 4. The net adjusted rents ranged from $6.14 per SF to $6.98 per SF, and he concluded the Subject's economic rent to be $6.60 per SF for tax years 2009 and 2010, and $6.65 for tax year 2011.
Fairfield's expert disregarded the Subject's September 2011 lease agreement since the commencement date was well beyond the assessment dates at issue here. He testified that he had never seen a rental that low, except maybe in Paterson, New Jersey, and since the prior tenant's rent arrearages would have no effect on the asking rent, he was skeptical of its validity as a market rent indicator.
(A) Comparable Lease Offerings
It is well-established that lease offers are generally unreliable indicators of a Subject's value. This is because they "represent only one half of the necessary equation" namely, a willing landlord, but no willing tenant. Korvettes Home Furnishing Ctr. v. Borough of Elmwood Park, 1 N.J. Tax 287, 291 (Tax 1980), and further because the lease terms "could well change" when actually consummated. Lamm Assocs. v. Borough of Caldwell, 1 N.J. Tax 373, 379 (Tax 1980). Thus, the offers are not "evidentiary and may not be considered in determining a property's economic rent." Harrison Realty Corp. v. Township of Harrison, 16 N.J. Tax 375, 381-83 n.3 (Tax 1997) (citations omitted), aff'd, 17 N.J. Tax 174 (App. Div. 1997), certif. denied. 153 NJ. 213 (1998).
Dwight's expert provided no cogent reason as to why an exception should be carved out for his lease comparable 7, which was an offer to lease a 13,970 SF warehouse at $6.50 per SF on October 1, 2010. It was of no moment to him that the comparable was also being offered for sale at $1.2 million (which then indicated that the landlord sought about $85 per SF, whereas the expert's rental conclusion when translated as a sale price would be about $40 per SF). Regardless, there are other reasons that require rejection of this lease offering as a comparable. Dwight's expert relied upon his exterior inspection and a brochure for information on the comparable's physical characteristics and proceeded to make adjustments for physical characteristics based on this second-hand information. He did not examine the interior yet made adjustments for ceiling heights. He provided a negative 5% adjustment for office space on the grounds that its 25% finished space was superior to that of the Subject, yet the entire space was vacant. Adjustments are normally only credible when the expert has personally examined the comparables, and have a reasonable basis. See e.g. Int'l Flavors & Fragrances. Inc. v. Union Beach Borough, 21 N.J. Tax 403, 427-28 (Tax 2004) (rejecting plaintiff's expert's reliance upon defendant's expert's comparable sale as being usable because the former expert had not inspected that comparable but instead relied upon another appraisal for a description of the comparable, thus, he "lacked sufficient knowledge" as to that sale, which rendered him "unable to made reliable adjustments"); Ford Motor Co. v. Edison Township, 10 N.J. Tax 153, 174-175 (Tax 1988) (rejecting an expert's explanation that since all industrial buildings were alike, personal inspections were unnecessary), aff'd, 127 N.J. 230 (1992). For all of these reasons, the court does not find the expert's comparable 7 lease offering, as probative.
Unlike the comparable 7 lease offering, Dwight's expert personally inspected the interior and exterior of the Subject, which was his comparable 8. He rejected the Subject's lease as being "too old" to be of any probative value since it commenced in 2001, and its lease rentals for the tax years at issue were negotiated and finalized in 2001, much before the assessing dates. Nonetheless, he considered the Subject's lease offering in August of 2010 ($5 per SF) as probative and meriting a "fair amount of weight" in his rent conclusion analysis because the lease offering was close to the assessment dates. He maintained that the offering price in 2010 corroborated his rental conclusion for all 3 tax years because the consummated rental at an average of $3.87 per SF was not only foreseeable but was also close to his average market rental conclusion for the Subject at $4.27 per SF (his $4.50 conclusion of rent for tax year 2011 with a negative 5% adjustment for time).
In Sage v. Bernards Township, 5 N.J. Tax 52 (Tax 1982), this court held that "an agreement of sale of the subject property, being between a willing buyer and a willing seller, cannot be excluded from consideration solely because it was executed 17 days after the assessing date." Id. at 67 (concluding that due to the contract contingencies and the interval between the contract's execution and its closing, the post-assessment contract was not probative as to true value of the subject property but would instead be corroborative of the validity of a per-unit method of valuation). Cf. Russo v. Borough of Carlstadt, 17 N.J. Tax 519. 525 (App. Div. 1998) (cautioning that "post-assessment events" such as the development/zoning permits/variations, should not always be deemed as irrelevant "to a determination of true value" and that they can be "probative of value" provided "such events corroborate facts known or reasonably foreseeable on the assessing date," which calls for a fact-sensitive/intensive analysis).
It may have been logically foreseeable that the Subject would rent for no higher than the asking price of $5 per SF for tax year 2011 (as of October 1, 2010), or even tax year 2010 (as of October 1, 2009 since the property manager credibly testified that the Subject was offered for $5.50 per SF in 2009 but there were no takers). However, apart from the fact that this does not encompass tax year 2009, the initial year asking rent would not control because the more reliable method would be to average the rents over the lease term (and thus avoid extremes, and account for rent concessions). See First Republic Corp. of Am. v. Borough of E. Newark, 16 N.J. Tax 568, 577-579 (Tax 1997). Further, many factors such as the lease period, the step-ups, and rent concessions, were simply not foreseeable as of the assessing date for any tax year. Therefore, the court does not find credible the expert's assertion that the Subject's September 2011 lease at the rates negotiated was "foreseeable" and thus probative of its economic rents for the tax years at issue. See e.g. City of New Brunswick v. State, Div. of Tax Appeals, 39 NJ. 537, 545 (1963) (rejecting an expert's use of post-assessment rents as reflective of the subject's economic rent because "valuation, although based upon a forecast of earnings, must be found upon what was known and anticipated as of the assessing date, unaided by hindsight"). This is especially because the market as of the tax years at issue would be tested by examining leases executed close to the assessment dates, as well as any other available objective data such as market reports commonly used by experts for the valuations dates at issue. Indeed, both experts here provided and utilized such information in their value conclusions.
Dwight's expert did not rely on the contractual amount of the Subject's September 2011 lease to develop his economic rent for the Subject, but used the $5 per SF asking lease price in August 2010 for all three tax years (although August 2010 was closest only to the assessment date for tax year 2011).
Additionally, the reasons behind the Subject's 2011 contracted rental amounts are unclear. It may be that the landlord, although a concededly reputable real estate management entity, preferred a low paying tenant as opposed to having the premises vacant or spending money on dividing the premises. It may be that the landlord's long-term relationship with the prior tenant (i.e., tolerating receipt of partial rent rather than evicting the tenant) gave it impetus to lower the rent for ACE since the prior tenant's partner stayed on with ACE. Such (speculative) business reasons, however, do not set the market. See e.g. Appraisal Institute, The Appraisal of Real Estate 200 (13th ed. 2008) ("[transactions may vary considerably . . . when a business is sold with the real estate" since the "transactional data" is usually confidential, therefore, "market data" is not "readily available"). Cf. McGinley Mills. Inc. v. Town of Phillipsburg, 9 N.J. Tax 508, 516 (Tax 1988) ("purchases of vacant buildings for a changed use tend to reflect lower prices than purchases by a user who can continue an existing operation").
For all of these reasons, the court assigns no weight to the Subject's lease offering in 2010 and 2011 as being indicative of the market rent of the Subject for the tax years at issue. (B) Consummated Lease Comparables
Dwight's expert conceded that his first comparable (19-21 Daniel Road) with a lease term of 3 years (2006 to 2009) was subject to a renewal in 2009, and was likely renewed since the same tenant was still occupying the premises as of his inspection. He was unaware of the rent amount, and presumed the same to be at market value. Such speculation is insufficient. As there is no information of the actual rental for 2009 and thereafter, the court rejects this lease as a reliable comparable for tax years 2010 and 2011.
As to his comparable 3 (125 New Dutch Lane), Dwight's expert received the average rental information from the real estate broker (this average accounting for rent concessions and step-ups). However, he admitted that he presumed the lease to be new, and had he known that it was a 35-year lease that was renewed he would likely not have used it, but that if it was an arms-length renewal, he would have. Given this speculation, the court will give very little weight to this comparable.
Dwight's expert's comparable 5 (11 Stewart Place rented to Parabox Media Group) was also used by Fairfield's expert. Although both experts personally inspected the comparable and agreed as to space (13,300 SF), they differed as to lease term (2 years versus 5 years), lease rate ($7.48 versus $7.75), percentage of office space (32% versus 7.5%), age (1986 versus 1972) and a 2-foot differential as to ceiling heights. Dwight's expert admitted that he did not have a copy of the lease, and was mistaken about the office space (which he speculated was likely 20%, and therefore, still merited a -5% adjustment), its age and further that the $7.48 per SF rental he used was the average, but the $7.75 per SF rental used by Fairfield's expert was "not surprising" for the leased area of 13,300 SF. Therefore, the court will use the facts presented by Fairfield's expert when using this comparable.
The court accepts all five of Fairfield's expert's comparables since he had reviewed the leases of each comparable, and additionally because they were all consummated transactions. His lease comparables 1, 2 and 4 had commencement dates in 2008 (thus, proximate to the assessing date for tax year 2009); comparable 5 commenced in March 2009 (thus proximate to the assessing date for tax year 2010); and comparable 3 commenced in August 2010 (thus proximate to the assessing date for tax year 2011).
(C) Adjustments to the Consummated Lease Comparables
(i) Market Condition or Time
Dwight's expert opined that the market was on an upward trend in 2006 by 5%; flat in 2007 and declined thereafter by 5%. Thus, he made no adjustments for tax year 2009 for his comparables 2 through 6, which commenced in April to July of 2008, but provided a -5% adjustment for comparable lease 1, a 3-year term lease commencing September 2006, since the market was down by 5% in 2008. For tax year 2010, comparable lease 1 received a -10% adjustment (i.e., -5% per year), whereas the remaining leases received a -5% adjustment. For tax year 2011, comparable lease 1 received a -15% adjustment and the comparable leases 2 to 6 received a -10% adjustment.
Fairfield's expert disagreed with Dwight's expert's market condition adjustments. In his opinion, there was no appreciable change in the market requiring adjustments to his comparables 1 and 4 for tax years 2010 and 2011 although they commenced in 2008, and thus, preceded the assessment dates for these tax years, by one and two years respectively, as was the case with comparable 5 commencing in 2009.
For tax year 2009, the only issue is whether a time adjustment is warranted for Dwight's expert's lease comparable 1 since both experts did not provide time adjustments for leases with commencement dates in 2008. For the third quarter of 2008, the national warehouse market as reported by PriceWaterhouse Coopers ("PriceWaterhouse") indicated an increasing vacancy in the "top-ten markets . . . including . . . Northern/Central New Jersey." MarketBeat, a Cushman & Wakefield Northern & Central Jersey Industrial Report ("MarketBeat") for the fourth quarter of 2008, also reported a much lower rate of leasing activity (17 million SF) as compared to 2007 (23 million SF), and that the leasing "velocity for warehouse/distribution buildings" was "waning" since a new construction was not attracting the same number of tenants as in 2008 (although there were 5 new leases all of which were for warehouse/distribution use). However, it also noted that the "overall" market which had a "surge" in the first quarter 2008, declined in the second quarter, but "rebounded" in the "last half of the year." MarketBeat concluded that the average net rental rate for warehouse/distribution buildings in Essex County was $6.58 per SF. Essex County also had the lowest vacancy rates of 4.5% for all types of industrial buildings as compared to the other submarkets within Northern New Jersey.
The other submarkets in Northern New Jersey included Bergen, Hudson, Morris and Passaic counties with vacancy rates of 7.7% and 7% (Bergen and Morris counties); 5.7% (Passaic County) and 4.7% Hudson County.
The court places heavier weight on the MarketBeat information since is it localized. Dwight's expert also conceded that the average net rental for Essex County ($6.58 per SF) and for Northern New Jersey ($6.70 per SF) was accurate, but that adjustments had to be made to the Subject due to its characteristics especially its inadequate turning radius in the loading dock area, and its recent leasing efforts. However, and despite the fact that the expert made a separate adjustment for the loading depth factor, such adjustments are not relevant to the market condition adjustments. The leasing efforts in 2010 and 2011 are not relevant to market conditions for tax year 2009, nor are they probative of the market conditions for tax years 2010 and 2011, as explained supra, and in light of the objective market data provided to the court.
Balancing the above information, the court finds that Dwight's expert's -5% adjustment for market conditions for his comparable lease 1 is unwarranted.
For tax year 2010, the national warehouse market report from PriceWaterhouse indicated that vacancies did not significantly improve in the last quarter of 2009, and that cash investors or buyers with "high levels of liquidity" could take advantage of buying opportunities. MarketBeat reported that although the market was experiencing a "tumultuous ride" new leases were being executed due to "logistics and shipping businesses" (with about 8 new leases, all of which were for warehouse/distribution uses) and there was significant space leased in Northern Jersey. It reported the net average asking rent for warehouse/distribution buildings in Essex County as $6.08 per SF as compared to the prior year's average rent for this category of $6.58 per SF. Although the overall vacancy rates for Northern & Central New Jersey increased by 1.3% from 2008, the vacancy rate in Essex County for all types of industrial buildings remained steady at 4.5%. The report forecasted that the "warehouse/distribution market will hold steady as Logistics and Shipping companies remain at the forefront of leasing in" Northern New Jersey, and that market rents would remain "flexible" with expected lower rents due to low demand, but that leasing activity would remain stable.
The above information indicates that there was a drop of about 7.5% in net average rents for warehouse/distribution from 2008 to 2009 in Essex County. When juxtaposed with the stability of the vacancy rates, and Fairfield's expert's lease comparable 4 (commencing March 2009 at $7.25 per SF for an 11,869 SF area), the court finds that a -5% adjustment for market conditions is reasonable. However, this would only apply for leases used by this court, and more specifically those commencing in 2008 since there is no data to show that the market dipped from the first quarter of 2009 to the last quarter of 2009.
For tax year 2011, the national warehouse market report from PriceWaterhouse indicated that the purchase of warehouses was the most favored investment option, next only to apartment buildings, especially if in proximity to port areas, and capitalization rates were lower. MarketBeat reported that overall vacancy rates remained fairly stable from 2009 and that leasing activity declined "slightly" (with about six new leases for warehouse/distribution uses, two of them being in Hudson County), though lease renewals "fared very well." Sales activity "surpassed" that of 2009 (with one such significant sale being 300-330 Fairfield Road in the Essex-Suburban region for $29.8 million). The net average asking rent for warehouse or distribution buildings in Essex County increased to $6.10 per SF as compared to the prior year's average rent for this category of $6.08 per SF. However, the vacancy rate for all types of industrial buildings in Essex County increased from 4.5% to 6.1%. The report forecasted that two quarters in 2010 had relatively strong leasing activity, and that while market rents are flexible, Northern New Jersey rents "will continue to be stable" since there was a "high demand for buildings" close to the New York market.
From this information, and the fact that Fairfield's comparable 3 (commencing August 2010) rented at $7.75 per SF for an area of 47,000 SF (thus comparable to the Subject's size), the court finds that no market condition adjustment is warranted for tax year 2011.
In sum, the court finds that a market conditions adjustment of -5% is appropriate only for tax year 2010.
(ii) Size
Dwight's expert provided a -10% adjustment for size. He derived the -10% by comparing the average rents of his comparables for tax year 2011 after those rents were adjusted for time. He then computed the average of the net rent of comparable lease 1 and the Subject's offering, and averaged that amount ($4.62 per SF) with the average rentals of comparables 2 to 7 ($5.52 per SF, but comparable lease 2 was omitted because its rental of $8 per SF was "substantially higher" than the other comparables, as the lease rentals averaged $5.33 per SF). This comparison indicated a percentage difference of 13% to 16%, which supported a -10% adjustment.
Fairfield's expert also provided a -10% adjustment based upon his experience and the conditions of the market.
Dwight's expert's computation method is questionable in that he presupposes his market condition adjustments are unassailable. There is no logic or explanation for why he averaged the net rent of a consummated lease (his comparable one) with the Subject's lease offer, and then compared that number with the average of his other comparables. Nonetheless, the court finds that a 10% quantum is reasonable, as both the experts used this number. Their substantive basis for the adjustment, namely, smaller spaces lease for higher rents thus, the Subject was inferior to the smaller comparables, was also the same, and is reasonable.
(iii) Office Space
Dwight's expert provided a -5% adjustment for percentage of finished space in the comparables which ranged from 7% to 32%, as compared to 7% of office space in the Subject. Fairfield's expert provided an adjustment of -5% (for office space of 12% to 15%) or -10% (for office space of about 28%). The court accepts -5% for all three tax years as a reasonable adjustment factor.
(iv) Ceiling Height
Both experts agreed that a lower ceiling height in their comparables merited an adjustment because buildings with higher ceilings are considered superior. Dwight's expert provided a +5% adjustment where the ceiling heights of the comparables ranged from 16 to 18 cubic feet as compared to the Subject's 22 cubic feet. He testified that he had reviewed data from Marshall & Swift (which was not appended to his report) which provided a 14% differential.
Fairfield's expert provided a +10% adjustment for his lease comparable 4 which had a ceiling height of 16 cubic feet. He did not make adjustments where the comparables' ceiling heights ranged from 18 to 20 cubic feet.
"Normally in a warehouse . . . high ceilings up to a certain height are desirable . . , ." Congoleum Corp. v. Hamilton Township, 7 N.J. Tax 436, 455 (Tax 1985). Since both experts agree that an adjustment is warranted, but Fairfield's expert did not explicate "at what height and to what extent high ceilings of the subject have a significant negative factor," ibid., the court finds a +5% adjustment for ceiling heights from 16 to 20 cubic feet to be reasonable.
(v) Condition
Dwight's expert made no adjustments to any of his comparables for condition, Fairfield's expert provided a -5% adjustment to his comparable 3 (291 Fairfield Avenue) because the improvements were in an "average to good" overall condition as compared to the Subject's improvements which was in an "average" condition. There were no challenges to this adjustment by Dwight, and the court therefore accepts this adjustment.
(vi) Depth of Loading Area
This was an area of significant dissension amongst the experts. Dwight's expert testified that he personally witnessed a 53-foot tractor-trailer attempting to back into the loading dock area, an exercise which took at least 20 minutes since the front of the tractor had to maneuver between the property line that was right against the vehicle, while the rear of the trailer had to nose into the loading area. The photographs contained in the expert's report show a truck's front very close to trees while backing up. The expert stated that there is a chain linked fence in the rear demarcating the property line which was virtually destroyed by trucks hitting it, as were some of the bushes in this vicinity. He also pointed out that the concrete pad which was adjacent to the loading dock where the trailers rested for unloading was much narrower than the softer asphalt area beyond where the trucks rested, and thus, was of inadequate length.
Dwight's expert asserted that he had measured each of his comparables' loading depth areas in this regard with a walk wheel and concluded that they all had ample space, and thus did not suffer from depth inadequacy or insufficient turning radius present in the Subject. He agreed that he was not a traffic engineer, but posited that as an expert appraiser, and based upon his visual inspection as well as conversations with the landlord and real estate broker, he would account for this physical characteristic as an adjustment factor. His report, which contained a picture of the creek on the eastern length of the loading area, noted that the same was a natural impediment to widening the loading area.
He contended that the maneuvering difficulties of 53-foot trucks at the Subject did not necessarily render it inefficient or inutile, and that it would not be cost-effective or feasible to rebuild the Subject, especially in a down market. Although functionally utile, the expert claimed that the maneuvering difficulties still rendered the Subject functionally obsolete. However, he conceded that large trucks had no difficulty parking (overnight or otherwise), and normal sized trucks could load and/or park on the Subject without any difficulty.
The expert provided a -15% adjustment for the Subject's inadequate depth in the loading area. His computation methodology was the same as for other adjustments, namely, he used tax year 2011 rents for his comparable leases' rents (including the one offering) after all adjustments (such as time, size, ceiling heights), which provided an average of $5.80 per SF. This, when compared to the Subject's offering in 2011 ($4.50 per SF), provided a 22% differential. He opined that under these circumstances, a -15% adjustment reasonable.
Fairfield's expert disagreed that the Subject's lack of adequate depth and maneuverability was an issue. He testified that he also had personally witnessed a 53-foot tractor-trailer backing into the loading dock, that the whole exercise took less than 5 minutes, and that there was no excess travel by the truck outside the property line towards the creek or into the chain link fence. He testified that the Subject was built for, and has always been used as a warehouse/distribution facility and that tenants were almost always trucking companies. He also stated that any alleged difficulty in maneuvering being presented in these valuation appeals could simply not have been substantive due to the absence of any complaints from the predecessor or successor tenant.
Fairfield's expert agreed that in the abstract, the ease of backup to the loading docks is important to a truck driver and to the utility of a warehouse, but contended that the parking distance from the building in the Subject to its perimeter was about 80 to 90 feet, which was about the same or even lower for all his lease comparables, and sufficient for the Subject's use and purpose as a warehouse/distribution center. He noted that Dwight's expert adjustment methodology was flawed because he picked comparables which he claimed had ample depth in the loading areas, whereas he should have used properties that had loading dock areas similar to the Subject's depth, and then, ideally, perform a paired-sales analysis.
Fairfield argues that Dwight's expert's -15% adjustment should be disregarded because it is not based upon any facts from normally accepted sources or an engineering report, but instead is based purely upon the expert's personal observation of a truck turning into the loading area and his reliance upon hearsay information that potential tenants of the Subject complained about the lack of depth/turning range in the loading area. Fairfield contends that Dwight's expert is not a traffic expert or engineer and thus lacks the expertise to opine on what is a desirable loading dock turning radius or range, therefore, his conclusion is simply lay/net opinion. Fairfield also points out that the articles submitted by Dwight in support of an acceptable turning range for trucks into the loading docks are unreliable and should not be considered by this court because they were not provided to Fairfield until after the trial was completed, were never relied upon by Dwight's own expert, and in any event, were simply opinions of other appraisers without the adequate supporting data.
Dwight provided three articles from the Appraisal Journal: (1) Douglas McKnight, A Practical Guide to Evaluating the Functional Utility of Warehouses, The Appraisal Journal (Jan. 1999); (2) Donald Sonneman, Challenges in Appraising "Simple" Warehouse Properties, The Appraisal Journal (April 2000); (3) John H. Lipscomb, Second-Generation Industrial Buildings: Value Determinants, The Appraisal Journal (July 2002). They were produced by Dwight towards the end of its cross-examination of Fairfield's expert, but until then, had not been provided to Fairfield. The court provided Fairfield additional time after the trial to review the articles and permitted both parties to provide any analysis or objections to their use in their respective post-trial briefs. Fairfield complied and objected to their use. Dwight did not provide any post-trial briefs.
An expert's opinion must be based on "facts, data, or another expert's opinion, either perceived by or made known to the expert, at or before trial." Rosenberg v. Tavorath, 352 N.J. Super. 385, 401 (App. Div. 2002). Any opinion lacking this foundation, "and consisting of'bare conclusions, unsupported by factual evidence' is inadmissible" net opinion. Johnson v. Salem Corp., 97 N.J. 78, 91 (1984). An expert must "give the why and wherefore" of his or her opinion, rather than a mere conclusion. Jimenez v. GNOC. Corp., 286 N.J. Super. 533, 540 (App. Div.), certif. denied, 145 NJ. 374 (1996); Greenblatt v. City of Englewood, 26 N.J. Tax 41, 55 (Tax 2010) ("the probative value of an expert's opinion must stand or fall upon the facts and reasoning offered in support of that opinion").
Fairfield's argument that the adequacy of the dimensions or ideal turning radius for a 53-foot truck is best elicited by expert testimony from an engineer is not unreasonable. However, the court is also cognizant that valuation experts routinely analyze warehouse and industrial properties. Part of the analysis involves a review of physical characteristics for their relevant comparability, which in turn, includes examination of the adequacy of loading or docking areas. The Appraisal of Real Estate, supra, at 200-01. Additionally, appraisers also examine the functional utility of the improvements being appraised, in terms of, among others, suitability, efficiency, accessibility and compatibility. Id at 262. For industrial properties such as warehouses, one of the "factors" that "must be considered" by an appraiser includes loading facilities and capacities as well as "slope of access to the site." Id. at 268-69. Further, a distribution facility should be "accessible to a greater variety of vehicles and cargo containers, making more frequent and often smaller pick-ups and deliveries", and therefore, "docks and dock areas must be designed with greater flexibility" especially since trucking "is the most common" method of transporting goods. Id. at 270. Fairfield's expert also agreed the quantity of loading docks could require an adjustment in value if the property being appraised has a lesser number of loading docks (with 1 dock per 10,000 SF being the rule-of-thumb). Dwight's expert's examination of the Subject's physical characteristics, specifically, the loading dock area, which constituted his basis for opining that the Subject suffered from functional obsolescence, is thus, properly within the realm of his appraisal analysis, and an area in which he is qualified to opine.
Nonetheless, Dwight's expert's -15% adjustment is probative only if it is supported by reliable market data and adequate reasoning. Here, Dwight's property manager testified that the large size of the Subject made it unattractive to potential tenants. Due to this, sometime in 2009, the landlord hired an architect to decide whether dividing the building was viable, but did not pursue the same because it would not be cost-effective. Dwight's expert also opined that it would not be cost-effective or feasible to rebuild the Subject especially in a down market, and that the Subject, while not functionally inutile, was functionally obsolete.
"Functional inutility" is defined as an "impairment of the functional capacity of a property or building according to market tastes and standards." Id. at 262. For instance, "[t]he cost of reconfiguring a large industrial building for multitenant use is a measure of functional inutility." Id. at 269. A property's functional inutility "must be judged [by] market standards of acceptability, specifically the standards of buyers who make up the market for a particular type of building within a particular period of time." Id. at 262. "Marketability is the ultimate test of functional utility" and a building is deemed to be "functional if it successfully serves the purpose for which it was designed." Id. at 263.
Although Dwight's property manager testified that the Subject's size did not attract tenants, its expert conceded that the Subject was not functionally inutile because of its size, or because of the alleged inadequate loading area (the concrete slab or the 53-foot truck turning radius). It is undisputed that the Subject is currently, and has always been, used as a warehouse. There is no proof that the Subject's actual tenants documented complaints as to the inefficiency or inutility of the improvements due to the truck turning radius in the docking area. It is undisputed that tractors, trucks or containers shorter than 53 feet, enter, exit, and park on the Subject with ease. The pictures also showed a 53-foot tractor parked on the Subject evidencing adequate parking space. Dwight's expert opined that the Subject's highest and best use is its current use as a light industrial/warehouse facility. Balancing all this information with Dwight's expert testimony that a 53-foot truck had a difficult time maneuvering the vehicle in position for loading/unloading cargo, the court finds that the Subject's ability to function as a warehouse is not impaired, and therefore, does not suffer from functional inutility.
Similar to functional inutility, functional obsolescence "is the inability of a structure to perform a useful function in accordance with current market standards." S.I.R. Educational Fund, Industrial Real Estate 392 (4th ed. 1984). Changes in "construction or design can render the industrial" facility "functionally obsolete." Id. at 18. Where "ongoing change, caused by technological advances and economic and aesthetic trends, renders building layouts and features obsolete," then the impairment of a property's functional capacity is deemed to qualify as "functional obsolescence." The Appraisal of Real Estate, supra, at 262. Thus, "loading docks" may be "inadequate" when "considered in light of current standards and usage." Industrial Real Estate, supra, at 394. In this connection, the "emerging trends in industrial building design" with respect to "just-in-time inventory practices" focus more on the rapid "movement of inventory" as opposed to long-term storage" of "large quantities" of goods. The Appraisal of Real Estate. supra, at 270.
The issue then is whether Dwight's expert supported his conclusion of the Subject's functional obsolescence with objective data showing that the market trend for the relevant tax years changed such that the maneuverability into the Subject's docking area no longer served its original purpose, or served it so inefficiently that the Subject was functionally obsolete. There is no such proof. He did not provide data to show that the Essex County industrial real estate market for the tax years at issue reflected a demand for a certain quantum or a defined area for 53-foot trucks. Although he testified that each of his comparables had more than ample depth in the loading area since he measured the same with a walk wheel, there was no amplification as to the area or dimensions of the Subject or the comparables. Without this information, it is not possible to gauge the value differential. In contrast, Fairfield's expert credibly showed that the loading area of the Subject (i.e., the distance through its perimeter) which he measured to be 80 to 90 feet was very similar in size to his comparables, and thus was able to credibly correlate the comparables' lease prices to his opinion of the Subject's market rent.
Fairfield's expert was cross-examined with pictures of the loading areas of his comparables using GoogleEarth. The court was subsequently provided with copies of the pictures however, they do not contain any size, measurement, or directional information. Nonetheless, Fairfield's expert showed that none of his lease comparables had excess or more area for truck maneuverability than the Subject's by credibly explaining the comparables' physical characteristics. Thus, he stated that his comparable 1 had dedicated parking spots for cars behind the truck parking area which inhibited truck loading when cars were parked, effectively thus, having the same area as the Subject. He stated that his lease comparable 3, which appeared to have a larger rear parking area between the comparable and another building, was not superior to the Subject because that area was an easement in favor of the other building (thus, not usable), and the truck loading was not in the rear. He testified that his comparable 4 had a side loading dock similar in size to the Subject, and while the rear loading area looked larger, it was so because it included an employee parking lot (thus not usable by the trucks). He also testified that his comparable 5 which had another building abutting in the rear, had a loading dock area that was identical to the Subject.
The articles provided by Dwight contain information on the ideal truck maneuvering space. In A Practical Guide to Evaluating the Functional Utility of Warehouses, supra, the author notes that according to a publication, The Warehouse Management by James A. Tompkins and Jerry D. Smith (McGraw-Hill 1988), "for a facility to accommodate a typical 55-foot tractor trailer, the apron should be 65 feet." The article also suggests that the apron plus the "turnout track should be 120 feet," and "a dock that requires a righthand approach should have a turnout track" of about "20 feet greater than that required for a lefthand approach" due to poor visibility of the truck's rear while turning. In the article Challenges in Appraising "Simple" Warehouse Properties, the author provides a table titled "Required Truck maneuvering Distances" which provides a "minimum turning radius" of 45 feet a "minimum for right-hand (counterclockwise)" of 109 feet for a 55-foot semi-trailer (relying upon A Practical Guide to Evaluating the Functional Utility of Warehouses, supra) and concludes that "the recommended combined distance from the loading dock to the outside edge of the turnout area" is about 108 feet (left-hand counterclockwise) and 132 feet (right-hand clockwise) approach for a 55-foot semi-trailer. In Second-Generation Industrial Buildings: Value Determinants, the author states that "[s]tandard truck docks typically require 120 feet of clearance to give trucks maneuvering space" for a "straight-on dock" but this distance can be reduced significantly where angle docks are employed."
These articles can provide insight into what appraisers would consider a truck's acceptable maneuvering distance for access to the loading dock. However, Dwight's expert never testified with respect to the articles nor did he profess any reliance upon the same. Thus, Evid. R. 703, which permits hearsay evidence properly relied upon by an expert, does not even apply to the articles provided by Dwight.
Even if the court were to accept that the information in these hearsay articles are commonly used by appraisers based upon Fairfield's expert's testimony to this effect, and therefore, reliable, they do not help Dwight. First, other than one article which relies upon a book, the other two do not explain their data sources. Indeed, one article relies upon the other article as its source data. Second, the articles indicate a method of computing or quantifying an adjustment for functional obsolescence which was not done in this case by Dwight's expert. Thus, one article states that "curable functional obsolescence can usually be calculated" by using the cost to cure methods "outlined" in The Appraisal of Real Estate, supra, and "capitalizing a rent loss" but the "best method of estimating incurable functional obsolescence is by capitalizing the "additional expense that the warehouse is forced to incur as a result of the functional problem." A Practical Guide to Evaluating the Functional Utility of Warehouses, supra at 36. Dwight did not provide the court with information as to the cost to cure or the forced additional expenses being incurred by the Subject, nor a reliable method of capitalizing the same.
The articles provided ideal distances for a 55-foot semi-trailer or tractor trailer. The court cannot surmise that the same would apply to a 53-foot trailer (which was the subject of Dwight's expert's testimony) by speculating that a 2-feet differential would likely not make any difference.
Fairfield's Supplementary Interrogatory #5 asked whether there are "any other extraordinary expenses which affect the value of' the Subject and "if so" for an explanation with supporting "billing records." Dwight's response was that the "management fee includes supervision of repairs and maintenance of $65,777.43." Interrogatory #3 for tax year 2011 asked for the "CAP rate that applies" to the Subject "as of October 1, preceding the year of appeal." Dwight's response was "Unknown."
The other articles state that "[i]deally, the comparables selected should have similar conditions in truck-maneuvering areas. If not, adjustments should be made based on data from the market." Challenges in Appraising "Simple" Warehouse Properties, supra, at 179. The article provides an example of this computation. Thus, an appraiser can compare the median sale price per SF (after adjusting for other factors) for properties similar to the subject property but having a "truck well" as opposed to properties like the subject property which has a "single overhead door," the difference between such medians being the adjustment factor. Ibid. Alternatively, an appraiser could perform a "regression analysis." Ibid.
Dwight's expert's computation methodology is somewhat similar to the article's example in that he averaged the tax year 2011 rents of his comparable leases' rents (including the one offering) after all adjustments such as time, size, ceiling heights, and compared that amount ($5.80 per SF) to the Subject's offering in 2011 ($4.50 per SF) for a 22% differential from which he opined -15% was reasonable. However, and as noted above, Dwight's expert did not provide any dimensions of the truck maneuvering distances or dimensions of his comparables, nor the Subject's area or dimensions in this regard. Without this information, it is difficult to conclude that the difference in the per SF adjusted rental prices and the Subject's actual or asking rent is the correct adjustment amount. The exercise is rendered even more questionable given the court's conclusions upon the use or reliability of Dwight's comparable leases, especially, the lease offerings. See infra.
In the absence of facts as to the actual dimensions or distances of a 53-foot truck's maneuverability in Dwight's comparables; absence of reliable market data supporting an adjustment for truck turning radius in the Subject; and absence of Dwight's expert's reliance upon the articles in The Appraisal Journal, the court finds that the -15% adjustment for functional obsolescence by Dwight's expert is not supported.
Based upon the above conclusions, the court finds the following adjustments to be appropriate: (a) -5% adjustment for market condition for tax year 2010; (b) -10% adjustment for size (except where not provided for by the experts) for all tax years; (c) -5% for finished office space for all tax years; (d) +5% adjustment for ceiling heights in comparables ranging from 16 to 20 cubic feet; and (e) -5% adjustment for condition in Fairfield's comparable 4 (291 Fairfield Avenue).
In determining the economic rent for the Subject, the court deems rents from leases with commencement dates closest to the assessment date as the most reliable economic rent indicators, but will also consider leases that are in proximity to the assessment dates, for each of the tax years at issue here. The court finds the market rent as follows:
Tax Year 2009 (Assessment Date October I 2008)
+-----------------------------------------------------------------------------+ ¦Comparable Leases ¦Lease Date ¦Lease Term ¦Leased Area ¦Rate Per SF ¦ +-----------------------+------------+------------+-------------+-------------¦ ¦11 Stewart Place, ¦8/6/08 ¦6y lm ¦14,700 SF ¦$7.75 ¦ ¦Fairfield ¦ ¦ ¦ ¦ ¦ +-----------------------+------------+------------+-------------+-------------¦ ¦9 Audrey Place, ¦7/1/08 ¦5 yrs ¦15,000 SF ¦$6.95 ¦ ¦Fairfield ¦ ¦ ¦ ¦ ¦ +-----------------------+------------+------------+-------------+-------------¦ ¦11 Stewart Place, ¦6/7/08 ¦5y 3m ¦13,300 SF ¦$7.75 ¦ ¦Fairfield ¦ ¦ ¦ ¦ ¦ +-----------------------+------------+------------+-------------+-------------¦ ¦15 Daniel Road, ¦6/1/08 ¦5 yrs ¦15,277 SF ¦$7.20 ¦ ¦Fairfield ¦ ¦ ¦ ¦ ¦ +-----------------------------------------------------------------------------+
Although he noted the average rent as $7.75 per SF in his report, Dwight's expert testified that this should be corrected to $7.20 PSF. The first year's rent was $6.50 per SF.
+--------------------------------------------------------------+ ¦125 New Dutch Lane, Fairfield¦6/1/08¦6 yrs¦22,000 SF¦$7.51 ¦ +-----------------------------+------+-----+---------+---------¦ ¦3 Lincoln Dr., Fairfield ¦4/1/08¦1 yr ¦20,000 SF¦$8.00 ¦ +-----------------------------+------+-----+---------+---------¦ ¦15 Daniel Rd., Fairfield ¦3/1/08¦7 yrs¦15,500 SF¦$6.82 ¦ +-----------------------------+------+-----+---------+---------¦ ¦19-21 Daniel Rd., Fairfield ¦9/7/06¦3 yrs¦48,100 SF¦$6.55 ¦ +--------------------------------------------------------------+ After adjusting the same for size (except for lease #1, 19-21 Daniel Road); office space; and ceiling height; the adjusted rents per SF are as follows:
This is a blended rate for 2008 through 2011 since the rent was $6.50 per SF for 3/1/08 to 2/28/09 and $7.15 per SF for 3/1/09 to 2/28/11.
This is a flat rate for the lease period.
+-------------------------------------------------------------------------------------+ ¦Comparable Leases ¦Rent ¦Time ¦Size ¦Space ¦Height ¦Condition ¦Adjusted Rent ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦11 Stewart Place ¦$7.75 ¦0% ¦-10% ¦-5% ¦+5% ¦0% ¦$6.96 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦9 Audrey Place ¦$6.95 ¦0% ¦-10% ¦-5% ¦+5% ¦0% ¦$6.25 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦11 Stewart Place ¦$7.75 ¦0% ¦-10% ¦-5% ¦+5% ¦0% ¦$6.96 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦15 Daniel Road ¦$7.20 ¦0% ¦-10% ¦-5% ¦+5% ¦0% ¦$6.48 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦125 New Dutch Lane ¦$7.51 ¦0% ¦-10% ¦-5% ¦0% ¦0% ¦$6.38 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦3 Lincoln Drive ¦$8.00 ¦0% ¦-10% ¦0% ¦+5% ¦0% ¦$7.60 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦15 Daniel Road ¦$6.82 ¦0% ¦-10% ¦-5% ¦+5% ¦0% ¦$6.13 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦19-21 Daniel Road ¦$6.55 ¦0% ¦0% ¦-5% ¦+5% ¦0% ¦$6.55 ¦ +-------------------------------------------------------------------------------------+ Giving least weight to the comparable located at 125 New Dutch Lane (Dwight's expert's comparable 3), see supra, and placing lesser weight to the comparable located at 19-21 Daniel Road (Dwight's expert's comparable 1) due to its remoteness to the assessment date, the court finds that the rents range from a low of $6.13 to a high of $7.60. It thus finds Fairfield's expert's conclusion of $6.60 per SF as a reasonable conclusion of the Subject's economic rent for tax year 2009.
Tax Year 20 JO (Assessment Date October L 2009)
+-----------------------------------------------------------------------------+ ¦Comparable Leases ¦Lease Date¦Lease Term ¦Leased Area ¦Rate Per SF ¦ +-----------------------+------------+------------+-------------+-------------¦ ¦6 Stewart Place, ¦3/1/09 ¦5y 3m ¦11,869 SF ¦$7.37 ¦ ¦Fairfield ¦ ¦ ¦ ¦ ¦ +-----------------------------------------------------------------------------+
This is a blended rate for 2009 to 2010 since the rent was $7.25 per SF for 3/1/09 to 2/28/10 and $7.50 per SF for 3/1/10 to 6/30/14.
+--------------------------------------------------------------+ ¦11 Stewart Place, Fairfield ¦8/6/08¦6y 1m¦14,700 SF¦$7.75 ¦ +-----------------------------+------+-----+---------+---------¦ ¦9 Audrey Place, Fairfield ¦7/1/08¦5 yrs¦15,000 SF¦$6.95 ¦ +-----------------------------+------+-----+---------+---------¦ ¦11 Stewart Place, Fairfield ¦6/7/08¦5y 3m¦13,300 SF¦$7.75 ¦ +-----------------------------+------+-----+---------+---------¦ ¦15 Daniel Road, Fairfield ¦6/1/08¦5 yrs¦15,277 SF¦$7.20 ¦ +-----------------------------+------+-----+---------+---------¦ ¦125 New Dutch Lane, Fairfield¦6/1/08¦6 yrs¦22,000 SF¦$7.51 ¦ +--------------------------------------------------------------+ After adjusting the same for market conditions; size; office space; and ceiling height, the rents are as follows:
See supra, n.12.
+-------------------------------------------------------------------------------------+ ¦Comparable Leases ¦Rent ¦Time ¦Size ¦Space ¦Height ¦Condition ¦Adjusted Rent ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦6 Stewart Place ¦$7.37 ¦0% ¦-10% ¦-0% ¦+5% ¦0% ¦$7.00 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦11 Stewart Place ¦$7.75 ¦-5% ¦-10% ¦-5% ¦+5% ¦0% ¦$6.59 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦9 Audrey Place ¦$6.95 ¦-5% ¦-10% ¦-5% ¦+5% ¦0% ¦$5.91 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦11 Stewart Place ¦$7.75 ¦0% ¦-10% ¦-5% ¦+5% ¦0% ¦$6.96 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦15 Daniel Road ¦$7.20 ¦0% ¦-10% ¦-5% ¦+5% ¦0% ¦$6.48 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦125 New Dutch Lane ¦$7.51 ¦0% ¦-10% ¦-5% ¦0% ¦0% ¦$6.38 ¦ +-------------------------------------------------------------------------------------+ Providing most weight to the first comparable (6 Stewart Place, Fairfield's expert's comparable 5) due to its proximity to the assessment date, lesser but equal weight to the remaining comparables, and least weight to the last, see supra, the court finds that Fairfield's expert's conclusion of $6.60 per SF is a reasonable conclusion of the Subject's economic rent for tax year 2010.
Tax Year 2011 (Assessment Date October L 2010)
+-----------------------------------------------------------------------------+ ¦Comparable Leases ¦Lease Date ¦Lease Term ¦Leased Area ¦Rate Per SF ¦ +-----------------------+------------+------------+-------------+-------------¦ ¦291 Fairfield Avenue, ¦8/1/10 ¦5 yrs ¦47,000 SF ¦$7.75 ¦ ¦Fairfield ¦ ¦ ¦ ¦ ¦ +-----------------------+------------+------------+-------------+-------------¦ ¦6 Stewart Place, ¦3/1/09 ¦5y 3m ¦11,869 SF ¦$7.37 ¦ ¦Fairfield ¦ ¦ ¦ ¦ ¦ +-----------------------------------------------------------------------------+ After adjusting the same for size; office space; ceiling height; and condition, the rents are as follows:
See supra, n.15.
--------
+-------------------------------------------------------------------------------------+ ¦Comparable Leases ¦Rent ¦Time ¦Size ¦Space ¦Height ¦Condition ¦Adjusted Rent ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦291 Fairfield Ave ¦$7.75 ¦0% ¦0% ¦-5% ¦0% ¦-5% ¦$6.96 ¦ +-------------------+------+------+------+-------+--------+-----------+---------------¦ ¦6 Stewart Place ¦$7.37 ¦0% ¦-10% ¦-0% ¦+5% ¦0% ¦$7.00 ¦ +-------------------------------------------------------------------------------------+ Giving most weight to the first comparable due to its proximity to the assessment date, and its comparable size, the court finds Fairfield's expert's conclusion of $6.65 per SF as a reasonable conclusion of the Subject's economic rent for tax year 2011.
In sum, the economic rent for the Subject is $6.60 for tax years 2009 and 2010, and $6.65 for tax year 2011.
Valuation Summary
The foregoing analysis can be summarized as follows for each tax year:
Tax Year 2009
+-------------------------------------------------+ ¦Potential Gross Income ¦ ¦ +--------------------------------------+----------¦ ¦55,404 SF@$6.60 per SF ¦$365,666 ¦ +--------------------------------------+----------¦ ¦Less: Vacancy & Collection Loss (6.5%)¦$ 23,768 ¦ +--------------------------------------+----------¦ ¦Effective Gross Income ¦$341,898 ¦ +--------------------------------------+----------¦ ¦Less Operating Expenses (11%) ¦$ 37,609 ¦ +--------------------------------------+----------¦ ¦Net Operating Income ¦$304,289 ¦ +--------------------------------------+----------¦ ¦OAR at 8% ¦ ¦ +--------------------------------------+----------¦ ¦Value (rounded) ¦$3,803,600¦ +-------------------------------------------------+
The assessed to true value ratio is 114.03% ($4,337,300/$3,803,600). Since Chapter 123 does not apply in a revaluation or reassessment year, N.J.S.A. 54:51A-6(d), the true value is the assessed value, and the assessment for 2009 is therefore $3,803,600.
Tax Year 2010
+-------------------------------+ ¦Potential Gross Income¦ ¦ +----------------------+--------¦ ¦55,404 SF@$6.60 per SF¦$365,666¦ +-------------------------------+
+-----------------------------------------------+ ¦Less: Vacancy & Collection Loss (7%)¦$ 25,597 ¦ +------------------------------------+----------¦ ¦Effective Gross Income ¦$340,069 ¦ +------------------------------------+----------¦ ¦Less Operating Expenses: (11%) ¦$ 37,408 ¦ +------------------------------------+----------¦ ¦Net Operating Income ¦$302,661 ¦ +------------------------------------+----------¦ ¦OAR at 8% ¦ ¦ +------------------------------------+----------¦ ¦Value (rounded) ¦$3,783,300¦ +-----------------------------------------------+ The assessed to true value ratio is 114.64% ($4,337,300/$3,783,300). Since this above the upper limit (115.74% or 100%), the assessment is reduced to $3,783,300.
Tax Year 2011
+-------------------------------------------------+ ¦Potential Gross Income ¦ ¦ +--------------------------------------+----------¦ ¦55,404 SF @ $6.65 per SF ¦$368,437 ¦ +--------------------------------------+----------¦ ¦Less: Vacancy & Collection Loss (7.5%)¦$ 27,633 ¦ +--------------------------------------+----------¦ ¦Effective Gross Income ¦$340,804 ¦ +--------------------------------------+----------¦ ¦Less Operating Expenses: (11%) ¦$ 37,488 ¦ +--------------------------------------+----------¦ ¦Net Operating Income ¦$303,316 ¦ +--------------------------------------+----------¦ ¦OAR at 8% ¦ ¦ +--------------------------------------+----------¦ ¦Value (rounded) ¦$3,791,500¦ +-------------------------------------------------+ The assessed to true value ratio is 114.4% ($4,337,300/$3,791,500). Since this above the upper limit (119.49% or 100%), the assessment is reduced to $3,791,500. CONCLUSION For tax year 2009, a judgment shall be entered as follows:
+-------------------------+ ¦Land ¦$ 1,067,000¦ +-------------+-----------¦ ¦Improvements ¦$ 2,736.600¦ +-------------+-----------¦ ¦TOTAL ¦$ 3,803,600¦ +-------------------------+ For tax year 2010, a judgment shall be entered as follows:
+-------------------------+ ¦Land ¦$ 1,067,000¦ +-------------+-----------¦ ¦Improvements ¦$2,716,300 ¦ +-------------+-----------¦ ¦TOTAL ¦$ 3,783,300¦ +-------------------------+ For tax year 2010, a judgment shall be entered as follows:
+-------------------------+ ¦Land ¦$ 1,067,000¦ +-------------+-----------¦ ¦Improvements ¦$ 2.724.500¦ +-------------+-----------¦ ¦TOTAL ¦$ 3,791,500¦ +-------------------------+
Very truly yours,
Mala Narayanan, J.T.C.
+----------------------------------------------+ ¦Tax Year¦Plaintiff's Expert¦Defendant's Expert¦ +--------+------------------+------------------¦ ¦2009 ¦$2,655,000 ¦$3,865,000 ¦ +--------+------------------+------------------¦ ¦2010 ¦$2,348,000 ¦$3,965,000 ¦ +--------+------------------+------------------¦ ¦2011 ¦$2,384,000 ¦$3,980,000 ¦ +----------------------------------------------+