Opinion
No. CV-02-0562691, CV-02-0562692
August 1, 2008
MEMORANDUM OF DECISION
These are two appeals from the action of the Board of Assessment Appeals of the Town of Montville concerning real property on the tax assessment lists for the tax year beginning October 1, 2001. Both appeals have been filed pursuant to the provisions of Connecticut General Statutes Section 12-117a. Docket Number CV-02-0562691 involves property of Rand-Whitney Realty, LLC. Docket Number CV-02-0562692 involves property of Rand-Whitney Containerboard L.P. The two appeals were consolidated pursuant to Connecticut Practice Book Section 9-5(a) by the court (Hurley, J.T.R.) on February 3, 2004. Both plaintiffs will be referred to collectively as "Rand-Whitney."
Pursuant to Connecticut General Statutes Section 12-117a, plaintiffs have amended the appeals to include the tax assessment years beginning October 1, 2002, 2003, 2004 and 2005.
At issue here is the assessment of four parcels of real estate located within the Town of Montville on Robertson Road, Route 163 and Maple Avenue. The adjoining parcels comprise the manufacturing facility operated by Rand-Whitney which produces linerboard from recycled corrugated cardboard. The total land area involved is approximately 14 acres with approximately 316,576 square feet of building area.
Rand-Whitney's appraiser has computed a lesser square foot for building area. Considering all of the factors, it is found that the 316,576 square foot area is more accurate because of the data available to the town's appraiser. In its brief, Rand-Whitney points out that the building area computed by the town's appraiser is still less than that used by the tax assessor.
Oxoboxo Brook flows through a part of the subject property. An old cemetery is located on the subject property and an abandoned spur railroad track also exists on the property. Rights of way may exist with respect to the cemetery and the railroad track. The possible existence of these rights of way, as well as license agreements involving some of the buildings do not appear to affect value.
The property is located in the Industrial Zoning District. The manufacturing activity for which Rand-Whitney utilizes the property is a permitted use under the Montville zoning regulations. The consolidated site does not conform to the setback and building height requirements of the regulations. In this regard, the property is a legal nonconforming use.
Municipal water and sewer services are available to the site.
The subject property consists of four parcels of land with improvements thereon as delineated by the tax assessor. The parcels are identified in the complaint, the briefs and the appraisals by the assessor's map, block and lot numbers. (Ex. Map 23, Block 76, Lot 0.) The fair market value of the four parcels of land, with the improvements thereon, was set forth on the tax assessment date of October 1, 2001, as follows: TBTABLE Parcel Fair Market Value 23/76/0 $ 2,206,600 82/46/2 $ 405,000 82/46/04 $19,695,700fn3 82/46/03 $ 483,600fn4 TB/TABLE Total fair market value $22,695,700
Claiming to be aggrieved by the valuations placed on the real property in question, Rand-Whitney appealed to the Montville Board of Assessment Appeals pursuant to Connecticut General Statutes Section 12-111. After hearing, the Board reduced the value of one parcel and increased the value of another parcel, as indicated, resulting in a fair market value of $22,695,700. Pursuant to Connecticut General Statutes Section 12-62a(b), the assessed value of the property was set in the tax assessment list for October 1, 2001, at 70% of fair market value, or $15,953,630.
Rand-Whitney has alleged that the tax assessor has improperly determined the true and actual value of the property and has overvalued and over-assessed it. Claiming that the Board of Assessment Appeals has failed to reduce the value of its property and that it is overvalued, Rand-Whitney, within the time allowed by Section 12-117a, has instituted the present appeal.
"Section 12-117a, which allows taxpayers to appeal the decisions of municipal boards of [assessment appeals] to the Superior Court, provide[s]s a method by which an owner of property may directly call in question the valuation placed by assessors upon his property . . . In a Section 12-117a appeal, the trial court performs a two-step function. The burden, in the first instance, is upon the plaintiff to show that he has, in fact, been aggrieved by the action of the board in that his property has been over-assessed . . . In this regard, [m]ere overvaluation is sufficient to justify redress under [Section 12-117a], and the court is not limited to a review of whether an assessment has been unreasonable or discriminatory or has resulted in substantial overvaluation . . . Whether a property has been overvalued for tax assessment purposes is a question of fact for the trier . . . The trier arrives at his own conclusions as to the value of land by weighing the opinion of the appraisers, the claims of the parties in light of all the circumstances in evidence bearing on value, and his own general knowledge of the elements going to establish value including his own view of the property . . .
"Only after the court determines that the taxpayer has met his burden of proving that the assessor's valuation was excessive and that the refusal of the board of [assessment appeals] to alter the assessment was improper, however, may the court then proceed to the second step in a Section 12-117a appeal and exercise its equitable power to grant such relief as to justice and equity appertains . . . if a taxpayer is found to be aggrieved by the decision of the board [assessment appeals], the court tries the matter de novo and the ultimate question is the ascertainment of the true and actual value of the applicant's property . . . If the court finds that the property has been in fact overvalued, it has the power to, and should, correct the valuation." (Citations omitted; internal quotation marks omitted.) Konover v. West Hartford, 242 Conn. 727, 734-36 (1997).
The first step which the court must take in deciding this appeal, therefore, is to determine whether Rand-Whitney has been aggrieved by the decision of the Board on the grounds that its real property has been overassessed and that the Board of Assessment Appeals improperly refused to reduce the assessment. In making this determination, it is necessary for the court to arrive at a preliminary conclusion concerning the fair market value of Rand-Whitney's property.
In the case at bar, the tax assessor has determined the fair market value of the subject property to be $22,695,700. Rand-Whitney's appraiser has determined that the value of the property is $5,050,000. The town's appraiser has determined the fair market value to be $21,769,000. This is the highest value in evidence and there is nothing to indicate a higher value for the property. The highest value in evidence, as determined by the town's appraiser, is $926,700 less than the fair market value determined by the assessor. It must then be found that the property has been overvalued by the assessor. Since mere overvaluation is sufficient to justify redress, it must then be found that Rand-Whitney has met its burden of proving that the assessor's valuation was excessive and the refusal of the Board of Assessment Appeals to reduce the assessment was improper.
Having determined that Rand-Whitney has established aggrievement, the court must proceed to the next step and ascertain the true and actual value of the property. Konover v. West Hartford, supra, 242 Conn. 734-36.
The court must arrive at a conclusion as to the value of Rand-Whitney's property by weighing the opinions of the appraisers, the claims of the parties in light of all of the circumstances in evidence bearing on value and the court's general knowledge of the elements going to establish value. Route 188, LLC v. Town of Middlebury, 93 Conn.App. 120, 123 (2006). The court also benefitted from an inspection of the premises on January 10, 2008.
The highest and best use of the property is commonly accepted by real estate appraisers as the starting point for the analysis of the true and actual value of property regardless of the method of valuation. Commissioner of Transportation v. Bakery Place, 83 Conn.App. 843, 850 (2004). In this case, the court has had the benefit of two outstanding appraisers with impressive training and experience in the field of property evaluation. The appraisers, however, differ as to the highest and best use of the property. Rand-Whitney's appraiser has determined that the highest and best use of the property, as is, would be for conversion to multi-tenant use with multiple tenants. The defendant town's appraiser considered the highest and best use of the property to be its present use as a paper-making facility. A property's highest and best use is commonly defined as "the use that will most likely produce the highest market value, greatest financial return, or the most profit from the use of a particular piece of real estate. (Emphasis added; internal quotation marks omitted.) Id. The highest and best use determination is inextricably intertwined with the marketplace because `fair market value' is defined as "the price that a willing buyer would pay a willing seller based on the highest and best possible use of the land assuming, of course, that a market exists for such optimum use. (Citations omitted; internal quotations marks omitted.) United Technologies Corp. v. East Windsor, 262 Conn. 11, 25 (2002). "For a particular highest and best use determination to be viable, however, there must be a reasonable probability that the subject property would be put to that use in the reasonably near future . . ." Breezy Knoll Ass'n. Inc. v. Morris, 286 Conn. 766, 786 (2008).
Rand-Whitney's appraiser opined that the highest and best use of the property would be a conversion to multi-tenant use is based upon his determination that there have been few sales of large industrial buildings in New London County in the past few years with no recent sales of paper mills in the region. It is argued that the property is configured for a paper mill and that the market for paper mills is nonexistent. The town's appraiser, with experience in the appraisal of paper mills, concluded that the highest and best use of the property would be its current use as a paper mill. This conclusion is based, primarily, on a determination that the paper mill building controls the value of the property as a paper manufacturing facility and that the paper mill building here is "state of the art." This conclusion is also based upon a determination and a market exists for the property.
Roger Wood, an engineer, with extensive experience in the paper making industry testified that in 2001 there were about 91 plants similar to Rand-Whitney in operation in North America and that the Rand-Whitney plant was one of the most modern. His testimony indicates that there was a market for paper mills such as the subject property.
The evidence indicates that the subject property has been used as a paper mill for over 100 years and has been sold as such a number of times. Other paper mills exist in the area and have been sold as paper mills. Stone Container, located about three miles from Rand Whitney's facility was sold as a paper mill to Smurfit Stone in 1998 and Sprague Paperboard was also sold in 1999 as a paper mill. Although it might be difficult to determine the selling price for the transfer of these paper mills because they were sold as a part of an ongoing business, the sales themselves indicate a market for such properties.
Although offshore competition exists, the evidence indicates that paper mills, such as the subject property, are being built in the United States at or around the assessment date. From all of the evidence, it must be found that a market does exist for the subject property as it is configured for the manufacture of liner board using recycled corrugated cardboard.
Any conclusion concerning the highest and best use of the property, however, must also include a reasonable probability that the property, if placed on the market, would be sold within a reasonably near future. Breezy Knoll Assoc., Inc. v. Morris, supra, 286 Conn. 786. In this connection, the exposure time developed by the town's appraiser appears to be reasonable when the type of property and the market, which would be national in scope, is considered. Exposure time is defined by the appraiser as "[t]he estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value . . ." The appraiser's estimate of the exposure time for the subject property was found to be in excess of one year. Considering the factors which would be involved in the offer of this property for sale on the open market, this is found to be a reasonable time.
It must then be concluded that the highest and best use of the subject property is its current use as a paper mill.
Rand-Whitney's position that the highest and best use would be a conversion to multiple tenancies is a worst case situation, which could result an unrealistically low value for the property.
"The highest and best use conclusion necessarily affects the rest of the valuation process because, as the major factor in determining the scope of the market for the property, it dictates which methods of valuation are applicable." United Technologies Corp. v. East Windsor, supra, 262 Conn. 25-26.
Having determined the highest and best use of the property, the court must next proceed to consider fair market value of the property.
Connecticut General Statutes Section 12-62a(b) requires each municipality to assess all property for purposes of the local property tax at a uniform rate of 70 percent of present true and actual value. Section 12-63 defines present true and actual value of property such as involved here to be fair market value and not value at a forced or auction sale. Fair market value has been defined by the court to mean "the value that would be fixed in fair negotiations between a desirous buyer and a willing seller, neither under any undue compulsions to make a deal." Carol Management Corp. v. Board of Tax Review of Greenwich, 228 Conn. 23, 34 (1993).
It has been held that the best test of value ordinarily is market sales. Where that data is unavailable, other methods, such as reproduction costs and capitalization of income may be used. No one method is controlling. Sibley v. Middlefield, 143 Conn. 100, 107 (1956). Rand-Whitney's appraiser arrived at his estimate of fair market value by an analysis of comparable sales and an income approach. In so doing, he based his conclusions upon a determination that the highest and best use of the property was a conversion to multi-tenant use with multiple tenants and not at its current use.
The town's appraiser used the cost approach to value the OCC paper mill building and the sales and income approach to value the remaining property. The values derived from these separate approaches were then combined to arrive at the total fair market value of the subject property.
Rand-Whitney criticizes the town appraiser's using one method of valuation for the older section of the property and another for the newer section since both parties agree that the property should be considered one economic unit. The principal reason advanced by the town's appraiser for using the different methods of valuation was that he considered the property to be a "limited market property which includes special purpose and general industrial sections." For this reason, he used the more conventional sales comparison approach and income approach for the older general industrial section and the cost approach to the newer special purpose property.
"[V]aluation of some properties may appropriately involve more than one single theory of valuation, and appraisals may be made which combine the cost approach and income approaches." Whitney Center, Inc. v. Hamden, 4 Conn.App. 426, 428 (1985). Because of the particular circumstances of this case, it is found that the use of two methods of valuation to arrive at the fair market value of the whole property is appropriate here.
The town's appraiser has concluded that the OCC building is a special purpose property. "A special purpose property is defined as real estate appropriate for only one use or a limited number of uses, whose highest and best use is probably a continuation of its present use. Id., 293. A limited use property or special purpose property has relatively few potential buyers or has a limited demonstrable market. It is usually defined in terms of buildings with a special purpose, but also includes theme parks and golf courses. It has a unique physical design, special construction or layout that restricts its utility to the use for which it was built. A two-mile long private road has been determined to be a special use property, and its value is its market value as improved. A special purpose classification may cause an exception to the use of usual valuation methods. It has also been noted that a reproduction cost approach is often used when a special purpose property must be assessed . . ." (Citations omitted; internal quotation marks omitted.) Sun Valley Camping Cooperative, Inc. v. Stafford, 94 Conn.App. 696, 713 (2006).
"No single method of valuation is controlling for the finding of fair market value for a special purpose property . . . This is so because the usual means of ascertaining market value, such as sales of like property, may not be appropriate when land is devoted to a special purpose." Id., 714.
The newer section includes what has been labeled the OCC building. This building contains the shipping warehouse and the paper mill. Construction of this building was started on or about November 4, 1993, and was then called a state of the art building. The main section of this building is quite unique. The building was designed by BE K, one of the largest engineering and construction firms supporting the paper mill industry in North America. It was specifically constructed to house the massive Beloit 5.2m fourdriner linerboard machine. The building was constructed first and the paper mill was then built inside. It is a negative movement structure so constructed that its foundation and the paper mill resting on it does not move.
The building is 54 feet in height and is supported by 88 prestressed, reinforced concrete columns. Each column is specially engineered and rests on a footing which goes down to bedrock. The concrete has anti-corrosive characteristics so as to resist the moisture and humidity resulting from the operation of the paper mill. There is a 300' long 2 1/2' thick concrete slab supported by some of the shorter columns. A basement area is located below the machine. This is necessary so that paper breaks which occur in the manufacturing process may be repaired.
There is no heating system in the building. Sufficient heat is generated by the paper mill itself. The interior of the paper mill building is open to the roof above the paper mill with a mezzanine which contains a small office or control room. A movable crane operates above the paper mill to assist in the operation of the mill.
Rand-Whitney argues that the OCC building is not a special purpose building and that the heavy reinforced concrete construction does not add value to the structure. The analogy of the $50,000 swimming pool, which would not necessarily add that amount of value to the property is used. Rand-Whitney's appraiser noted that manufacturing buildings are always designed and constructed for the intended users and that if the floor of the OCC building were filled in, the building could be used for a variety of uses.
Rand-Whitney also relies on Southern New England Telephone Co. v. Milford, Superior Court, Judicial District of Ansonia-Milford, Docket Number 0078344 (November 5, 2003) (Ripley, II, JTR). In that case, the tax assessor claimed that a 22,000 square foot building constructed with extra thick walls and foundation to contain a telephone switching facility was a special purpose building. The trial court rejected the claim that it was a special purpose building finding that it could easily be used for office, retail, residential or other purposes. The facts found by the court in Southern New England Telephone Co. involve a 22,000 square foot building with extra thick walls and foundation are quite different from that existing on the subject property.
A special purpose building has been defined as real estate appropriate for only one use or a limited number of uses, whose highest and best use is probably a continuation of its present use. Sun Valley Camping Cooperative, Inc. v. Stafford, supra, 94 Conn.App. 713. This definition of a special purpose building is applicable to the OCC building. It was designed and constructed to house the huge linerboard machine and this is its highest and best use. As configured on the assessment date of October 1, 2001, it could be used for little else. As Rand-Whitney's appraiser points out, if the machine were removed and the floor filled in, it could be used for storage or other uses. But this is true of other properties which have been determined to be special purpose properties. For example, a theme park could be converted to another use by removing the structures which make it a theme park and we are all familiar with golf courses and marinas which could be considered special purpose properties being converted to residential use. The cost of disassembly and removal of the huge machine is also a factor which must be considered.
Having determined that the OCC building is a special purpose building, it must also be found that the cost approach would be the most appropriate method of determining its fair market value. See Whitney Center, Inc. v. Hamden, supra, 4 Conn.App. 428; Sun Valley Camping Cooperative, Inc. v. Stafford, supra, 94 Conn.App. 713. The comparable sales approach was also ruled out since both appraisers agreed that paper mills were usually sold as a part of an ongoing business and it would be extremely difficult to ascertain what portion of the sales price should be allocated to real property.
Using the cost approach, the appraiser arrived at a value of $17,336,526 for the principal building to which he added a site value of $373,000 for a rounded figure of $17,709,000. Other buildings on the site included the warehouse and the maintenance storeroom, office and tool crib, to which a value of $1,060,000 was assigned. The total value of the new section, as determined by the town's appraiser was $18,769,000.
Rand-Whitney claims that the valuation of the OCC building by the town's appraiser is unsupportable. It is pointed out that the square foot value of the OCC building as determined by the town's appraiser is $197.20, which it is claimed is 8 to 14 times greater than the square foot value which both appraisers used to determine land values by the comparable sales approach. It was also pointed out that the square foot value as determined by the town's appraiser substantially exceeds that charge for class A high rise office buildings in Downtown Hartford at the time.
Valuation of the special purpose property by the cost approach is appropriate here. However, it must be found that the value arrived at by the town's appraiser is excessive.
The appraiser indicates that in determining fair market value by the cost approach, reproduction costs, replacement costs or actual costs may be employed. In this case, since reliable cost data was made available through discovery, the appraiser determined that actual cost would be the most dependable.
The actual cost to construct the special purpose building in 1994 was found by the town's appraiser to be $17,548,045. To this figure, the cost of improvements was added arriving at an actual cost of $18,514,102. This figure was determined to be reliable and was based upon information supplied by Rand-Whitney. Using the swimming pool analogy, Rand-Whitney argues that actual cost might not indicate market value. While it is reasonable to assume that the construction of the OCC building might be high, there was no evidence as to the reasonableness of the cost of such construction in 1994. The procedure used by the appraiser involved actual costs as the starting point in his determination of market values. It is not apparent that a purchaser on the open market would necessarily accept actual cost. Rand-Whitney's appraiser testified that purchasers of such properties do purchase for less than actual costs.
Using the Marshall Valuation Manual, the appraiser adjusted the 1994 construction cost to October 1, 2001, by adding $3,527,157 to the original cost to arrive at a current cost of $22,184,082. While it would be appropriate to adjust the 1994 cost to the date of assessment and the appraiser could use the manual, there was no evidence as to inflation or other factors which would confirm the adjustments made by the appraiser.
Depreciation was deducted from the current cost of $22,184,082 to arrive at a depreciated cost of $18,283,205.
To the depreciated cost, the appraiser added $761,300 for entrepreneurial profit. The appraiser used a conservative factor to arrive at this figure. The rationale for this addition is that the investor would want this amount as a return for investment in the property. Rand-Whitney's appraiser defined entrepreneurial profit as being that which someone would be willing to pay more for building than it costs to construct. Here, there was no evidence that the market would support such an adjustment.
After adding amortized costs of $792,021 and deducting $2,500,000 as the cost to cure the excessive moisture which was causing the metal siding and roof to rust, the town's appraiser determined, by the cost approach, that the value of the OCC building was $17,336,526. To this, was added a site value of $373,000 resulting in a total value for the newer special purpose property, rounded off, of $17,709,000. To this figure, the appraiser added $1,060,000 as the value of the older buildings on the site resulting in a total valuation for this section of $18,769,000. In arriving at this figure, the procedure used by the town's appraiser was basically correct. However, the value arrived at is found to be excessive for the reasons previously stated. It is found that this portion of the property has been overvalued by $4,000,000 and that the true and actual value of the property on the assessment date was $14,769,000.
The town's appraiser used the more conventional sales comparison approach to arrive at the value of the older section of the property. In so doing, the appraiser considered the verified sales of industrial properties in Bristol, Glastonbury, New Haven and West Springfield, Massachusetts. After making adjustments, he arrived at an adjusted value of $18.35 per square foot for land and buildings. Applying this figure to 163,326 square feet, the appraiser determined that the value of the older section was $2,997,032, which he rounded off to $2,997,000.
The square foot figure arrived at by the town's appraiser is not too dissimilar from that found by Rand-Whitney's appraiser using the comparable sales approach which was between $15.35 to $18.22 a square foot.
The comparable sales used by the appraiser and the adjustments are reasonable and the result is found to be the fair market value of the older section of the property. Using the income approach, the appraiser arrived at a slightly higher value, but the figure determined by the comparable sales approach appears to be more valid.
The total value of the property in question is found to be: TBTABLE Newer Section $14,769,000 Older Section $ 2,997.000 Total $17,766,000 TB/TABLE The total fair market value of the property which is the subject of this appeal on the assessment date of October 1, 2001 is found to be $17,766,000.
It is therefore found that justice and equity require that the fair market value of the subject property be reduced on the tax assessment list of October 1, 2001 from $22,695,700 to $17,766,000. This reduction applies to the entire property which the tax assessor has valued as four separate parcels. The parties agree that the property is an integrated facility and has operated as such. The assessor should allocate the reduction on a pro rata basis to determine the value of each of the four parcels.
Accordingly, judgment is entered for the plaintiff and it is ordered that plaintiff be reimbursed for the overpayment of any taxes paid together with interest thereon and costs.