To be Argued by:
B. P. OLIVERIO, ESQ.
(Time Requested: 15 Minutes)
APL-2013-00061
Appellate Division Docket No. CA 12-00434
Erie County Clerk’s Index Nos. I 2009-9034 and I 2010-7588
Court of Appeals
of the
State of New York
IN THE PROCEEDING OF THE APPLICATION OF THE
BOARD OF MANAGERS OF FRENCH OAKS CONDOMINIUM,
Petitioner-Respondent,
– against –
TOWN OF AMHERST, HARRY WILLIAMS, Town of Amherst Assessor,
BOARD OF ASSESSMENT REVIEW OF THE TOWN OF AMHERST,
Respondents-Appellants,
and
WILLIAMSVILLE CENTRAL SCHOOL DISTRICT,
Intervenor.
BRIEF FOR PETITIONER-RESPONDENT
September 19, 2013
AMIGONE, SANCHEZ & MATTREY LLP
B. P. Oliverio, Esq.
Attorneys for Petitioner-Respondent
1300 Main Place Tower
350 Main Street
Buffalo, New York 14202
Tel.: (716) 852-1300
Fax: (716) 852-1344
TABLE OF CONTENTS
TABLE OF CITATIONS ......................................................................................... iii
COUNTER STATEMENT OF QUESTIONS PRESENTED .................................. 1
COUNTER STATEMENT OF JURISDICTION OF COURT AND
PRESERVATION OF QUESTIONS PRESENTED ................................................ 3
PRELIMINARY STATEMENT ............................................................................... 5
The Hearing ..................................................................................................... 5
The Supreme Court Decision ........................................................................ 10
The Memorandum and Order. ....................................................................... 12
The Majority Opinion ................................................................................... 12
The Dissenting Opinion ................................................................................ 14
ARGUMENT .......................................................................................................... 18
A. THE FOURTH DEPARTMENT WAS CORRECT WHEN IT
AFFIRMED SUPREME COURT AND HELD THAT
PETITIONER PROVIDED SUBSTANTIAL EVIDENCE OF
A CREDIBLE DISPUTE WITH RESPECT TO VALUATION
OF THE CONDOMINIUM UNITS ................................................... 18
1. There is no requirement in this state that an appraisal in
an RPTL Article 7 proceeding be undertaken by a
licensed appraiser .................................................................... 18
2. That Mr. Strell accepted a fee for preparation of
Petitioner's Appraisal does not preclude him from
testifying Petitioner's behalf .................................................... 20
3. Lack of details and photographs of the interior of each
condominium unit in Petitioner's Appraisal is a matter to
be weighed by the Court ........................................................... 23
4. Failure to allocate aggregate value of the condominium
complex among the units is a question of weight to be
afforded to Petitioner's Appraisal ............................................ 28
B. THE FOURTH DEPARTMENT WAS CORRECT WHEN IT
AFFIRMED SUPREME COURT AND HELD THAT
PETITIONER SHOWED BY A PREPONDERANCE OF THE
EVIDENCE THAT THE CONDOMINIUM UNITS WERE
OVERASSESSED .............................................................................. 33
C. THE FOURTH DEPARTMENT WAS CORRECT WHEN IT
AFFIRMED SUPREME COURT AND HELD ADOPTION
OF THE TOWN'S NOI AND APPLICATION OF
PETITIONER'S CAPITALIZATION RATE WAS NOT
ERROR ............................................................................................... 40
D. THE TOWN'S BRIEF IGNORES WELL ESTABLISHED
LAW ................................................................................................... 55
CONCLUSION ....................................................................................................... 63
11
TABLE OF CITATIONS
CASES
300 Gramatan Avenue Associates v. State Division of Human Rights, 45
NY2d 176 (1978) ................................................................................................. 24
Atkin v. Assessor of Town of Greece, 50 AD3d 1496 (4th Dept. 2008) ................. 30
Brown v. Concord Nurseries, Inc., 53 AD3d 1067 (4th Dept. 2008) ...................... 20
Champlain National Bank v. Brignola, 249 AD2d 656 (3rct Dept. 1998) ... 20, 28, 41
Chase Manhattan Bank, N.A. v. State, 103 AD2d 211 (2nd Dept. 1984) ................ 51
Geffen Motors, Inc. v. State, 33 AD2d 980 (4th Dept. 1970) .................................. 54
Glenbriar Co. v. Lips man, 5 NY 3d 388 (2005) ...................................................... 44
Golub Corporation/Price Chopper Operating Co. v. Assessor of Queensbury,
282 AD2d 962 (3rd Dept. 2001) ........................................................................... 27
Heary Bros. Lightning Protection Co. v. Intertek Testing Services, N.A.,
Inc., 4 NY3d 615 (2005) ...................................................................................... 44
Johnson v. Haverstraw, 133 AD2d 86 (2nd Dept. 1987) ......................................... 25
Katz v. Assessor of Mt. Kisco, 82 AD2d 654 (2nd Dept. 1981) .............................. 53
Kumick v. State of New York, 54 AD2d 1098 (4th Dept. 1976) .......... 41, 42, 43,46
Manno v. Finance Administrator of the City of New York, 92 AD2d 896 (2nd
Dept. 1983) .......................................................................................................... 25
Matott v. Ward, 48 NY2d 455 (1979) ..................................................................... 19
Matter of 50540 Realty Inc. v. City of New York, 136 AD2d 699 (2nd Dept.
1988) .................................................................................................................... 39
Matter of Acquisition of Real Property by the County of Dutchess, 186
AD2d 891 (3rd Dept. 1992) .................................................................................. 53
Matter of Addis Co. v. Srogi, 79 AD2d 856, lv denied, 53 NY2d 603 (1981). 34,46
111
Matter of Bialystock & Bloom v. Gleason, 290 AD2d 607 (3rd Dept. 2002)30, 31,61
Matter of Blue Hills Plaza Associates v. Town of Orangetown, 230 AD2d
846 (2nd Dept. 1996), lv denied, 89 NY2d 804 (1996) ........................................ 38
Matter of Burke Apts. v. Swan, 137 AD2d 321 (3rd Dept. 1988) ........................... 41
Matter of City of New York (Oceanview Terrace), 42 NY2d 948, (1977) ...... 40,41
Matter of City of Rochester v. Lubelle, 17 4 AD2d 100 (4th Dept. 1991) ............... 41
Matter of Connecticut Mutual Life Insurance Company v. Srogi, 101 AD2d
698 (4th Dept. 1984) ............................................................................................. 38
Matter of Continental Assurance Co. v. Village of Lynbrook, 113 AD2d 795
(2nd Dept. 1985), app dis'd, 66 NY2d 915 .......................................................... 41
Matter of East Medical Center v. Assessor of the Town of Manlius, 16
AD 3d 1119 (4th Dept. 2005) ................................................................................ 28
Matter of FMC Corp. v. Unmack, 92 NY2d 179 (1998) ........................................ 23
Matter of Gordon v. Town of Esopus, 296 AD2d 812 (3rd Dept. 2002) ................. 33
Matter of Greater New York Savings Bank v. Commissioner of Finance, 15
AD3d 661 (2nd Dept. 2005) ...................................................................... 34, 39, 46
Matter of Johnson v. Kelly, 45 AD3d 687 (2nd Dept. 2007) ................................... 25
Matter of Niagara Mohawk Power Corp. v. City of Cohoes Board of
Assessors, 280 AD2d 724 (3rd Dept. 2001), lv. denied, 96 NY2d 719
(2001) ............................................................................................................. 46, 47
Matter of Niagara Mohawk Power Corp. v. Town of Bethlehem Assessor,
225 AD2d 841 (3rd Dept. 1996) ..................................................................... 25,47
Matter of Northern Pines Mhp, LLC v. Board of Assessment Review of the
Town of Milton, 72 AD 3d 1314 (3 rd Dept. 201 0) ............................................... 49
Matter of OCG Limited Partnership v. Board of Assessors of Town of
Owego, 79 AD3d 1224 (3rd Dept. 2010) ............................................................. 19
Matter of Rice v. Srogi, 70 AD2d 764 (4th Dept. 1979) ......................................... 38
lV
Matter of Schoeneck v. City of Syracuse, 93 AD2d 988 (4th Dept. 1983) ....... 34, 40
Matter of Tennessee Gas Pipeline Co. v. Town of Sharon Board of
Assessors, 298 AD2d 7 58 (3rd Dept. 2002), lv denied, 99 NY2d 506
(2003) ············································································································· 19, 25
Matter of Thomas v. Davis, 96 AD3d 1412 (4th Dept. 2012), lv denied,
101AD3d 1699, lv denied, 21 NY3d 860 (2013) .......................................... 44, 45
Matter of Welch Foods v. Town of Westfield, 222 AD2d 1053 (4th Dept.
1995) .................................................................................................................... 23
National Fuel Gas Supply Corp. v. Goodremote, 13 AD3d 1134 (4th Dept.
2004) ········································································································ 20, 28,41
Niagara Falls Urban Renewal Agency v. 123 Falls Realty, Inc., 66 AD2d
1009 (4th Dept. 1978), lv denied, 46 NY2d 997 (1979) ....................................... 52
Orange & Rockland Utilities, Inc. v. Williams, 187 AD2d 595 (2nd Dept.
1992) .................................................................................................................... 25
People v. First American Corp., 18 NY 3d 173 (20 11) ........................................... 22
People v. First American Corporation, 76 AD3d 68 (1st Dept. 2010) .............. 21, 22
Price v. New York City Housing Authority, 92 NY2d 553 (1998) ........................ 19
Riccio v. NHT Owners, LLC, 79 AD3d 998 (2nd Dept. 2010) ............................... 20
Richmond County Country Club v. City of New York, 173 AD2d 532 (2nd
Dept. 1991) .......................................................................................................... 26
Rochester v. Iman, 51 AD2d 651 (4th Dept. 1976) ................................................. 47
Star Plaza, Inc. v. State of New York, 79 AD2d 746 (3rd Dept. 1980) ................... 50
Wagman v. Bradshaw, 292 AD2d 84 (2nd Dept. 2002) .......................................... 48
STATUTES
Civil Practive Law and Rules 5501 (b) .................................................................... 44
Real Property Law §339-y .................................................................................... 1, 2
v
Real Property Tax Law §581 ................................................................................ 1, 2
Real Property Tax Law §706(2) .............................................................................. 30
Real Property Tax Law Article 7 ...................................... 1, 4, 18, 22, 44, 47, 48, 55
OTHER AUTHORITIES
19 NYCRR 1106.1 ...................................................................................... 20, 21,22
22 NYCRR 259(g) ............................................... 3, 10, 23, 25, 27, 28, 29, 30, 31, 55
Executive Law 160-x(l) and 160-y(l) ........................................................ 20, 21,22
Vl
COUNTER STATEMENT OF QUESTIONS PRESENTED
Each of the "Questions Presented" by Respondents-Appellants 1 begs the
very question to be determined in this appeal: the sufficiency of "facts, figures and
calculations" in the appraisal submitted by Petitioner-Respondent2.
Properly stated, the questions presented are:
1. Did "Petitioner's Appraisal"3 and hearing testimony provide
"substantial evidence of a credible dispute" as required in RPTL Article 7
proceedings?
Answer: Yes. As both the Appellate Division, Fourth Department (the
"Fourth Department"), including the dissenting justices, and Supreme Court held,
Petitioner submits Petitioner's Appraisal, hearing testimony and evidence did so.4
2. Did Petitioner show by preponderance of the evidence that assessment
of the French Oaks Condominium by the Town was in excess of the aggregate
market value of the Condominium units as determined pursuant to RPL §339-y and
RPTL §581?
Answer: Yes. As both the Fourth Department and Supreme Court held,
Petitioner submits that it did prevail by a preponderance of evidence at the hearing.
1 Respondent's-Appellants hereinafter, collectively, the "Town".
2 Petitioner-Respondent hereinafter, collectively, "Petitioner."
3 The Self Contained Appraisal Report for French Oaks Condominium prepared by Robert P.
Strell of MBA Consulting and Appraisal Co. (474)
4 Given the dissent did not hold otherwise, that issue is not properly before this Court.
1
3. Did Supreme Court err when it adopted the net operating income
("NOI") as determined in the "Town's Appraisal"5 and applied the capitalization
rate determined in Petitioner's Appraisal to calculate the aggregate market value of
the Condominium units pursuant to RPL §339-y and RPTL §581?
Answer: No. Petitioner submits the Fourth Department was correct
when it held it was not error to do so and affirmed Supreme Court.
5 Retrospective Self-Contained Real Estate Appraisal Report of French Oaks Condominium by
Thomas H. Newton of Emminger, Hyatt, Newton, Pigeon, Inc. (52).
2
COUNTER STATEMENT OF JURISDICTION OF COURT AND
PRESERVATION OF QUESTIONS PRESENTED
In the discussion of "Jurisdiction of the Court and Preservation of Questions
Presented," the Town at p. 2 of its brief states that:
The legal issues addressed at the Appellate
Division, Fourth Department (in both the
majority opinion and two-justice dissent),
included whether: (a) petitioner's evidence
(and particularly its appraisal) failed to
comply with the requirements of the
Uniform Rules for the New York State Trial
Courts and the Uniform Standards of
Professional Appraisal Practice, and,
therefore, was both incompetent and
inadmissible as evidence of value; (b)
petitioner's evidence was legally sufficient
to require a factual determination by the
referee presiding over the trial as to the
value of the condominium units; and (c) if
so, whether petitioner's evidence as to the
capitalization rate was competent,
admissible, and legally sufficient to support
the trial court's decision to adopt that
capitalization rate.
Despite extensive argument by the Town before the Fourth Department, the
Uniform Standards of Professional Appraisal Practice ("USPAP") are not
mentioned whatsoever in the Fourth Department's Memorandum and Order in this
matter ( 1131; the "Memorandum and Order") - in either the opinion of the
majority or in the dissenting opinion. Both the concurring justices and the
dissenting justices relied upon 22 NYCRR 259(g) and case law.
3
Assuming for the sake of argument Petitioner's Appraisal is not consistent
with USP AP, the Town cites no New York court that has held appraisals in RPTL
Article 7 proceedings must be USP AP compliant. Indeed, as will be shown herein,
New York law is expressly to the contrary. Given the extent to which USPAP is
discussed by the Town in its brief, the Town apparently believes established New
York case law is inadequate for it to prevail on this appeal and is asking this Court
to make new law.
Both the majority and dissent held Petitioner's evidence provided substantial
evidence of a credible dispute regarding valuation. The majority expressly did so:
" ... we reject respondents' contention that the appraisal of petitioner's expert does
not demonstrate the existence of a credible dispute" (1132) and the dissent
implicitly did so: "[ w ]e conclude that petitioner failed to meet its ultimate burden
of establishing the subject property is overvalued." (1137)
Thus, only the third of the legal issues identified the Town may be before
this Court, i.e., whether the capitalization rate determined by Petitioner's appraiser
was admissible.
Notwithstanding the foregoing, Petitioner in perhaps an excess of caution,
will address all issues raised by the Town in its brief.
4
PRELIMINARY STATEMENT
The rate of return required by an investor of property is most often a result
of a complex analysis of a series of facts upon which projected revenues are based
and risks associated therewith, and, as are all projections virtually by definition,
such projections are often quite subjective, even when informed by historical
information.
Statements m the dissent show the dissenting justices would weigh the
evidence differently than did the majority and would accord Petitioner's appraisal
no weight in weighing the respective merits. Thus, in this appeal, the Town
cleverly seeks to bootstrap a question of fact into a question of law.
The Hearing.
In a withering cross-examination of the Town's appratser, Mr. Newton,
Petitioner's counsel destroyed the feigned precision of the Town's Appraisal and
much of the Town's argument in its appeal to the Fourth Department and to this
Court. (969)
In that cross-examination, Mr. Newton testified, among other things:
(i) land value was immaterial when a property is valued using an income
based methodology6 (985-989);
6 Mr. Strell in direct examination had already testified to that effect. (779-780)
5
(ii) his verification techniques and information supporting alleged
comparable properties were similar to efforts by Mr. Strell (989-990);
(iii) his "Equity Yield Rate" of 10% (part of his determination of a
capitalization rate and equivalent to the "overall rate (the "OAR") in Petitioner's
Appraisal and was selected without any support based on his experience ( 1 006);
(iv) the hypothetical loan scenario presented in the Town's Appraisal was
not available to any, but larger, high quality credit worthy individuals and entities
( 1004-1 006);
( v) he utilized the "mortgage equity technique" ( 1001) to capitalize
income, a technique that melds the cost of debt with the selected "Equity Yield
Rate" (10% ), yet ignored the claimed reasons for doing so:
appreciation/depreciation was assumed to be zero, return on equity investment was
ignored and the earnings stream was not truncated at 10 years ( 1043) ;
(vi) he assumed a loan term of 20 years, interest at a rate of 6.5% and a
75% "loan to value" ratio, but was unable to assure that such terms were actually
available to all investors and the verification of these terms was nothing more than
Mr. Newton's assurances that he spoke with bankers in WNY and a national
survey (1003-1006);
(vii) that (A) a change in loan to value ratio would change the
capitalization rate and the ultimate value of the Condominium (a decrease in such a
6
ratio would increase the capitalization rate and decrease the Condominium value so
determined (1010-1017), (B) if borrowing was reduced to zero (a "cash on cash"
deal), the capitalization rate would be the "Equity Yield Rate" (10%) and the value
of the Condominium would be substantially less than he determined (1014-1019)
and (C) he did not analyze sensitivity of the end result to variations in the loan to
value ratio (1014);
(viii) he could not explain why interest expense wasn't considered an
expense in determining the hypothetical NOI (1035-1039);
(ix) he did not understand the calculations in the capitalization of income
analysis, having relied instead upon software with which he was not familiar
(1030-1031);
(x) he could not identify where the assumed 10 year holding period and
other assumptions underlying selection of the "Mortgage Equity Method" were
included in his determination of the capitalization rate ( 1007-1 008);
(xi) cash flow to the investor in the hypothetical loan scenario in the
Town's Appraisal was never considered (1044-1048);
(xii) without financing, the applicable rate of return (capitalization rate)
would be Mr. Newton's "Equity Yield Rate," which he determined (without any
support) to be 10% (1015-1019);
7
(xiii) he was familiar with the axiom that, "the value of an asset is equal to
the sum of the present value of its future income stream" and that such axiom does
not implicate financing and admitted that the decision to purchase an asset at a
specific price is distinct from the decision whether and how to finance the purchase
(1019);
(xiv) there was a cost to borrowing money and agreed that, as shown on the
amortization schedule admitted as Petitioner's Exhibit 8, there was an interest cost
over the life of the loan of approximately $3,000,000 or $150,000 per year (1035-
1039);
(xv) he was unable and refused to analyze the cash flow to the fictional
investor in his loan scenario, i.e., net operating income as determined in the EHNP
Appraisal ($535,423), less (i) debt service (principal and interest) of $28,406 per
month or $340,876 per year and (ii) real property taxes (including special district
taxes) of $165,135 per year, which leaves the investor only $29,412 as an annual
cash return, a very unattractive amount, suggesting a very risky investment at that
price and one unlikely to obtain funding at 6.5% (1044-1048): and
(xvi) he was unable to justify either financially or economically not
including borrowing costs (interest expense) in the determination of projected net
operating income of the property as residential rental property (1035-1043).
8
World War II pilots reputedly often said that, "The flak is heaviest when you
are over the target." Numerous objections by Town counsel during the cross-
examination of Mr. Newton certainly support that adage (e.g. 1015- 1035).
The cross-examination of Mr. Strell, Petitioner's appraiser, by Town counsel
was as extensive, but much less fruitful for the Town. (837, 951)
In that cross-examination, Mr. Strell testified, among other things, that:
(i) he was not licensed, (838);
(ii) any appraisal, including his in Petitioner's Appraisal, is the opinion of
the appraiser (961-962);
(iii) allocation of the value of the entire condominium among the
individual units was a clerical task (776-778, 848);
(iv) despite a number of desperate attempts by Town counsel to find
otherwise, his compensation was on an hourly basis, independent of the results of
his analysis (855-857);
( v) reference to "our case" in marketing pieces and in correspondence did
not create any bias (860, 867);
(vi) his role as an advisor to the Petitioner throughout the administrative
and adjudicatory process did not affect his appraisal (862);7 and
7 Mr. Strell' s preliminary valuation submitted to the Town's Board of Assessment Review was
more than 10% less than that in Petitioner's Appraisal submitted to the Court - $$3,84 7,500
versus$ $4,265,000 (864).
9
(vii) adjustments made to obtain his conclusions regarding the rental value
per square foot for the units included consideration of rental rates for comparable
rental units, application of concessions, finishes, etc informed by his 30 years of
experience in the WNY market. (931, 960-962)
Given the devastating cross-examination of Mr. Newton by Petitioner's
counsel and lengthy, but relatively fruitless cross-examination of Mr. Strell by
Town counsel, the Town has no other option but to seek new law. If the Town is
unable to convince an appellate court to strike Petitioner's Appraisal (especially
the capitalization rate determined therein), the Town can not be found to have
prevailed by a preponderance of the evidence.
The Supreme Court Decision.
In the Memorandum Decision on Non-Jury Trial (10; the "Supreme Court
Decision"), the Court Attorney Referee found, among other things:
Petitioner's appraisal contained many
reasonably comparable rental properties, and
the conclusions of value by the appraiser,
Robert Strell, were for the most part
sufficiently supported by "facts, figures and
calculations," as required by 22 NYCRR
202.59(g)(2) . . . The fact that Mr. Strell did
not compute a separate value concerning the
land did not require striking the appraisal.
As Mr. Strell noted at trial, a separate
valuation of the land would not alter the
market value for assessment purposes, and
he nonetheless provided several comparable
land sales (see his Addendum). Because the
10
units are assessed as if they were rental
property, based upon the value of the entire
condominium complex, a separate
assessment of the value of the land would
not change the outcome ...
Secondly, petitioner's appraiser's failure to
perform the calculations of the value of each
separate unit based upon square footage or
percentage of ownership, is not fatal to its
case . . . Mr. Strell testified that the Amherst
town assessor prefers to compute
assessments on the basis of square footage,
and respondent's appraiser in fact computed
individual unit market values in that manner.
The court determines that petitioner's
documentary and testimonial evidence was
based on sound theory and objective data,
and thus that Petitioner has met the
substantial evidence threshold. (12) (internal
citations omitted)
Having so found, Supreme Court at this point weighed all of the evidence to
determine whether Petitioner had prevailed by a preponderance of the evidence. In
her analysis, the Referee noted a trial court's obligation to use all of the evidence
in the record in order to establish fair market value. (25, 29)
The Referee rejected Mr. Newton's capitalization rate "as being based on
nationwide data not necessary relevant to the Western New York market" (25) and
"more importantly, there were aspects of the formula used by Mr. Newton that he
did not adequately explain ... " (26)
11
Because Petitioner's calculation of the capitalization rate was based upon
actual sales of apartment complexes in the local suburban areas, the Referee
adopted Petitioner's capitalization rate. (26)
While the referee adopted Mr. Newton's determinations and calculation of
NOI, she did note that despite the differing work, the NOI determined by each
appraiser differed only negligibly (Mr. Newton: $535,423; Mr. StreB: $541,754).
8
The Memorandum and Order.
The Majority Opinion.
On this record and given the arguments of the parties, the Fourth Department
in the Memorandum and Order affirmed the Supreme Court Decision, rejecting the
Town's demand that it make new law.
First, the Fourth Department rejected the Town's contention that Petitioner's
evidence did not constitute substantial evidence of the existence of a valid dispute
regarding valuation of the complex. In so holding, the Fourth Department rejected
the contention that Mr. StreB was not qualified to testify (as did the dissenting
8 It can readily be seen that had Supreme Court utilized Mr. Newton's Equity Yield Rate instead
of Mr. Strell' s OAR, the resulting valuation of the condominiums would have been lower than
that determined by Supreme Court:
Condominium value determined by Supreme Court using the Town's NOI and
Petitioner's capitalization rate:
$535,423 7 .123 = $4,353,033, rounded to $4,353,030
Condominium value determined by Supreme Court using the Town's NOI and "Equity
Yield Rate":
$535,423 7 .128 = $4,182,992, rounded to $4,183,000
12
justices, since the issue was ignored in the dissenting opinion), noting that the fact
Mr. Strell is not a licensed appraiser is of no moment and that accepting a fee for
his work goes only to the weight to be afforded to his appraisal. (1133)9
Next, the Fourth Department rejected Respondent's contention that
Petitioner's appraisal must be rejected because of failure to describe in detail the
interior of the Condominium units and lack of photographs thereof, noting Mr.
Strell's opinion (after approximately 30 years of experience in the Western New
York real estate field) that the differences in the interiors did not affect the rental
market in Western New York and that this opinion was a factor for Supreme Court
to consider in weighing the evidence. (1133)
The Fourth Department then held that failure to establish the fair market
value of each of the units is a question of the weight to be afforded to Petitioner's
Appraisal and supporting testimony, not its sufficiency. (1133)
Citing case law requiring that an appraisal contain sufficient facts, figures
and calculations to allow opposing counsel the opportunity to effectively prepare
for cross-examination, the Fourth Department found that Petitioner's Appraisal did
so to an extent that avoided prejudice to the Town in the course of preparing for
cross-examination. (1134). The Fourth Department held similarly with respect to
9 It is significant that Petitioner did not raise the question of whether Mr. Newton received a fee
for his efforts. It is inconceivable that he did not.
13
the Town's contention regarding calculation of the capitalization rate by Mr. Strell.
(1134-1135)
The Fourth Department rejected Mr. Newton's capitalization rate on the
same grounds as stated by Supreme Court. (1136)
The Dissenting Opinion.
The two dissenting justices found that the capitalization rate of Petitioner's
Appraiser was "legally and factually flawed" 10 and that "each flaw is
independently fatal to Petitioner's case." The dissent would discard Petitioner's
Appraisal and adopt the value set forth in Respondent's Appraisal as the aggregate
value of the condominium. 11 ( 1137)
The dissenting justices claim that the legal flaw underlying Petitioner's
capitalization rate is reliance upon his personal exposure to three of the four
comparable properties to justify his calculation of the capitalization rate. In a non
sequitur, the dissent states that while opinion evidence is competent evidence of a
capitalization rate, such opinion evidence must still be supported by factual data
supporting such rate. While easily stated, that argument is much more nuanced.
Opinions are, indeed, based upon facts that became known to the expert over his
years of experience. That does not require an expert to identify each and every fact
10 Because the dissent disagreed as to both law and facts, Petitioner moved this Court for an
order dismissing this appeal. That motion was denied by Order dated June 6, 2013.
11 Without expressly so stating, the dissent held Petitioner's Appraisal and testimony showed a
credible dispute regarding valuation: "[ w ]e conclude that petitioner failed to meet its ultimate
burden of establishing the subject property is overvalued." (1137)
14
upon which an opinion is based. See Argument A below. Such a determination is,
however, in any case, an estimate based upon experience, i.e., an expert opinion.
In this regard, it should be noted that by its very nature, capitalization of
income involves projected cash flows (NOI). An investor will utilize accurate
(audited) historical financial information to inform the projected cash flows, and
where anticipated future events so require, projections sometimes vary
significantly from historical precedent. Given that historical results typically
fluctuate, at times significantly, the art of projecting venture cash flow is critical to
the success of an investment.
The factual flaw articulated by dissenting Justices Peradotto and Cami was
Petitioner's Appraisal's failure to make appropriate adjustments to the comparable
properties used in calculating the capitalization rate. It should be readily apparent
that focus by the dissent (and the Town in its brief) upon the age of a property, or
whether it is high end or low end, is misplaced. Age and richness are only two
among the many factors to be considered in the course of projecting a property's
cash flow and an appropriate capitalization rate given the risks associated
therewith. Other factors considered include, without limitation, location,
attractiveness in the market place, and required renovations and investment. Like
projected NOI, a capitalization rate is also a subjective number, based upon
assessment of risk associated with a property as perceived by an investor (or in the
15
case of an appraisal, the appraiser). Thus, the Fourth Department's holding that
the determination of a capitalization rate is a question of fact for the trial court and
that opinion evidence of appraisers is competent is correct not only as a matter of
law, but as a matter of reality and practice.
As noted above, Supreme Court could have simply adopted the Town's
Equity Yield Rate. Had it done so, the value determined would have been even
lower than that determined by Supreme Court. (See footnote 8 herein.)
The dissenting justices are arguing to disregard the capitalization rate
determined by Mr. Strell based upon facts and figures of which he had knowledge,
but to accept the Equity Yield Rate in the Town's Appraisal based upon nothing
but a statement by Mr. Newton. That argument is without merit.
Given it found substantial evidence of a credible dispute, it was incumbent
upon Supreme Court to determine a capitalization rate. Before it were the
capitalization rate determined by Mr. Newton on behalf of the Town and that of
Mr. Strell on behalf of Petitioner. Given the devastating cross-examination of Mr.
Newton wherein he could not defend the technique he selected or any of the
parameters used in implementing such technique, Supreme Court could not
rationally have adopted Mr. Newton's capitalization rate. Supreme Court could
have chosen to adopt (i) Mr. Newton's Equity Yield Rate, which would have
resulted in a lower value for the complex or (ii) that of Mr. Strell.
16
The Fourth Department opined Supreme Court properly weighed the
evidence in this regard. The dissent, however, ignores the myriad flaws in the
Town's determination of a capitalization rate exposed in cross-examination of Mr.
Newton, both intuitive and technical, and would substitute their judgment as to the
credibility of witnesses and evidence for that of Supreme Court and adopt Mr.
Newton's appraisal in its entirety, including his capitalization rate.
Under the scheme adopted by the dissent, Petitioner's in cases of income
property such as this would be denied the ability to challenge an assessment. The
statement in the dissent that documents supporting Mr. Strell' s capitalization rate
should have been included in the record contradicts the opinion nature of an
appraisal and would effectively preclude challenge in any case where capitalization
of income was the chosen methodology and "hard" information regarding required
investor returns for virtually identical property are not available- almost all cases.
See Mr. Newton's testimony regarding opinions of appraisers. (975)
17
ARGUMENT
A. THE FOURTH DEPARTMENT WAS
CORRECT WHEN IT AFFIRMED SUPREME
COURT AND HELD THAT PETITIONER
PROVIDED SUBSTANTIAL EVIDENCE OF
A CREDIBLE DISPUTE WITH RESPECT TO
VALUATION OF THE CONDOMINIUM
UNITS
The dissenting justices conclude in the first paragraph of the dissenting
opinion "petitioner failed to meet its ultimate burden" and in the third last
paragraph thereof "petitioner's appraisal should be accorded no weight." There is
no discussion of the substantial evidence standard. Since all presiding justices
found Petitioner proffered sufficient evidence of a credible dispute regarding
valuation, that issue is not properly before this Court and the Town inclusion of
that issue in its brief should be ignored by this Court.
Nonetheless, that issue is addressed by Petitioner herein because the
rationale of the majority in that regard is a predicate and relevant to whether
Petitioner prevailed by preponderance of the evidence.
In the majority opinion in the Memorandum and Order, the Fourth
Department addresses each of the allegedly fatal flaws in Petitioner's Appraisal.
1. There is no requirement in this state that an appraisal in an RPTL
Article 7 proceeding be undertaken by a licensed appraiser. Matter of OCG
18
Limited Partnership v. Board of Assessors of Town of Owego, 79 AD3d 1224 (3rd
Dept. 2010).
In Matter of OCG Limited Partnership v. Town of Owego, the Third
Department addressed the qualifications of an appraiser in connection with a
capitalization of income analysis:
... we note that expert witnesses who are not
real estate appraisers are not categorically
excluded from offering their opinion on
property valuation ...
Then, citing Matter of Tennessee Gas Pipeline Co. v. Town of Sharon Board of
Assessors, 298 AD2d 758 (3rd Dept. 2002), lv denied, 99 NY2d 506 (2003), the
Third Department goes on to say, " ... in fact, experts who are not appraisers may
be preferable for certain appraisal methods."
In Matott v. Ward, 48 NY2d 455 (1979), the Court of Appeals stated:
Generally speaking, a predicate for the
admission of expert testimony is that its "
subject matter involve information or
questions beyond the ordinary knowledge
and experience of the trier of the facts.
Moreover, the expert should be possessed of
the requisite skill, training, education,
knowledge or experience from which it can
be assumed that the information imparted or
the opinion rendered is reliable. (emphasis
added).
See Price v. New York City Housing Authority, 92 NY2d 553 (1998) [an expert
may be qualified without specialized academic training through long observation
19
and actual experience]; Riccio v. NHT Owners, LLC, 79 AD3d 998 (2nd Dept.
2010) [the competence of an expert in a particular subject may derive from long
observation and real world experience, and is not dependent upon formal training
or attainment of an academic degree in the subject]; Brown v. Concord Nurseries,
Inc., 53 AD3d 1067 (41h Dept. 2008) [the witness possessed the requisite
knowledge ... through study, experience and observation].
Thus, with over 30 years of relevant experience, Mr. Strell qualified as an
expert to offer opinions at the hearing, including opinions in regard to an
appropriate capitalization rate. The parties so stipulated as well. (734)
2. That Mr. Strell accepted a fee for preparation of Petitioner's Appraisal
does not preclude him from testifying Petitioner's behalf. National Fuel Gas
Supply Corp. v. Goodremote, 13 AD3d 1134 (41h Dept. 2004); Champlain National
Bank v. Brignola, 249 AD2d 656 (3rd Dept. 1998).
The Town strenuously argues that Mr. Strell' s representation of Petitioner
for a fee before its Board of Assessment Review and preparation of a preliminary
assessment utilized in its administrative complaint precludes a fair and unbiased
appraisal in this proceeding. Respondent's argument has no merit.
Although not applicable here since Mr. Strell is not licensed, neither New
York statutes nor USPAP prohibit appraisers from accepting fees. Executive Law
160-x(l) and 160-y(l); 19 NYCRR 1106.1.
20
The Town completely ignores footnote 1 of the opinion of the Appellate
Division, First Department in People v. First American Corporation, 76 AD3d 68
(1st Dept. 2010). In that footnote, the First Department provides:
USP AP is incorporated into New York law
and it prohibits a State-certified or State-
licensed appraiser from accepting a fee for
an appraisal assignment "that is contingent
upon the appraiser reporting a
predetermined estimate, analysis, or opinion
or is contingent upon the optmon,
conclusion of valuation reached, or upon the
consequences resulting from the appraisal
assignment (Executive Law 160-y [1]; 19
NYCRR 1106.1).
Executive Law §160-x(1) provides that:
A client or employer may retain or employ a
state certified or licensed real estate
appraiser to act as a disinterested third party
in rendering an unbiased estimate of value
or analysis."
Executive Law §160-y(l) provides that:
A state certified or licensed real estate
appraiser may not accept a fee for an
appraisal assignment as defined in ... [§ 160-
x] . . . of this article, that is contingent upon
the appraiser reporting a predetermined
estimate, analysis or opinion or is contingent
upon the opinion, conclusion or valuation
reached, or upon the consequences resulting
from the appraisal assignment.
21
Mr. Strell is not a State certified or licensed real estate appraiser (838).
Therefore, while Executive Law §§160-x and 160-y and 19 NYCRR 1106.1 12 are
not applicable to Mr. Strell, his conduct satisfied the requirements thereof since his
fees were not contingent on the value he determined or the result of this
proceeding. (855-857).
In addition, there is no case in New York making USPAP applicable to
appraisals submitted in RPTL Article 7 proceedings. In People v. First American
Corp., 18 NY3d 173 (2011), a case cited by the Town arising out of an action
commenced by the Attorney General seeking injunctive and monetary relief as
well as civil penalties for violations of New York's Executive Law and Consumer
Protection Act, this Court affirmed the First Department's opinion, People v. First
American Corporation, supra. The primary issue addressed in that case was
whether Federal law preempts State claims alleging fraud and violation of real
estate appraisal independence rules in connection with residential mortgages.
In People v. First American Corp., this Court did not hold that US PAP is
applicable to RPTL Article 7 proceedings and the Town cites no case where
USP AP compliance was required in an RPTL Article 7 proceeding using a
capitalization of income methodology.
12 19 NYCRR 1106.1 incorporates enumerated provisions of USPAP into the Board of Real
Estate Appraisal Standards and applies any to a certified or licensed appraiser
22
3. Lack of details and photographs of the interior of each condominium
unit in Petitioner's Appraisal is a matter to be weighed by the Court. Matter of
Welch Foods v. Town of Westfield, 222 AD2d 1053 (4th Dept. 1995).
Pointing out that 22 NYCRR 202.59(g) does not require photographs and
Mr. Strell' s testimony that differences in interior finishes did not affect rental value
in Western New York, the Fourth Department held Supreme Court, as it should
have, properly considered the foregoing in weighing the evidence.
The standard of evidence required to overcome the presumption of validity
of an assessment is a minimal one. Matter of FMC Corp. v. Unmack, 92 NY2d
179 (1998)
In the context of tax assessment cases, the
"substantial evidence" standard merely
requires that petitioner demonstrate the
existence of a valid and credible dispute
regarding valuation. The ultimate strength,
credibility or persuasiveness of petitioner's
arguments are not germane during this
threshold inquiry. Similarly, the weight to
be given to either party's evidence is not a
relevant consideration at this juncture.
Instead, in answering the question whether
substantial evidence exists, a court should
simply determine whether the documentary
and testimony evidence proffered by
petitioner is based on "sound theory and
objective data" rather than on mere wishful
thinking.
While a petitioner's proof must show by
"substantial evidence" that its property has
23
been overvalued, the standard is a minimal
one. In order to rebut the presumption of
validity of respondent's assessment,
petitioner need merely provide credible and
competent evidence, usually in the form of a
competent appraisal, that a valid dispute
exists concerning the property's valuation.
Id. at 188, 191 (citations omitted and
emphasis added ).
In its opinion in Matter of FMC Corp. v. Unmack, this Court noted that it
had not theretofore defined the precise contours of substantial evidence in the
context of assessment proceedings, but that it had discussed substantial evidence,
in general, in 300 Gramatan A venue Associates v. State Division of Human Rights,
45 NY2d 176 (1978).
Petitioner's Appraisal (a) contains approximately 120 comparable residential
rental units, including an ML listing sheet with approximately 65 non-duplicative
entries showing "market" rents for residential rental units and actual rents of
comparable condominiums (b) an analysis of arguably comparable condominium
units and residential rental units in the Town that were used to determine a range of
market rents for residential units such as the units of the condominium; (c) utilizes
actual expenses of the condominium wherever possible, data from other apartment
complexes in Western New York where necessary and direct information available
to the appraiser to determine expenses; (d) utilizes an OAR within one-half percent
of the Town's Equity Yield Rate (determined by Mr. Newton with virtually no
24
analysis) and (e) properly applies an accepted methodology to determine the
aggregate value of the Condominium. Given these facts, it cannot be said that
Petitioner's Appraisal fails as a matter of law to meet the criteria set forth in 22
NYCRR §202.59(g)(2) or present substantial evidence of a credible dispute
regarding valuation of the Condominium.
Matter of Tennessee Gas Pipeline Co. v. Town of Sharon Board of
Assessors, supra, and Matter of Niagara Mohawk Power Corp. v. Town of
Bethlehem Assessor, 225 AD2d 841 (3rd Dept. 1996), cases cited by the Town, are
inapposite. Each of these cases involves assessment of "specialty property"
pursuant to a replacement cost methodology (RCNLD), which is a completely
different valuation methodology than capitalization of income and irrelevant here.
In Matter of Johnson v. Kelly, 45 AD3d 687 (2nd Dept. 2007), the Second
Department held petitioner failed to proffer substantial evidence of a credible
dispute regarding valuation where petitioner's appraisal addressed only the
unimproved land portion of the property in question, ignoring the value of
improved portions. These facts are readily distinguishable from those at bar and
inapposite. That case does not advance the Town's argument. 13
13 Manno v. Finance Administrator of the City of New York, 92 AD2d 896 (2nd Dept. 1983),
Johnson v. Haverstraw, 133 AD2d 86 (2nd Dept. 1987), and Orange & Rockland Utilities, Inc. v.
Williams, 187 AD2d 595 (2nd Dept. 1992), predate Matter of FMC Corp. v. Unmanck, supra, and
are thus inappropriate. Nevertheless, the facts in each of theses cases differ substantially from
the case at bar.
25
In State of New York v. Town of Thurman, 183 AD2d 264 (3rd Dept. 1992),
widely divergent appraisals by the parties of woodland on the subject property
were before the Court. The Court held that respondent's motion to strike
petitioner's appraisal of the woodland value should have been granted because
virtually every fact, figure and
calculation necessary for an understanding
of the complex report and conclusion was
absent . . . [as a result of which] ...
respondent was highly prejudiced in
presenting its case, in cross-examination at
trial and in meeting petitioner's data and
method revealed only at trial."
Here, the Fourth Department expressly found no such prejudice to the Town.
Richmond County Country Club v. City of New York, 173 AD2d 532 (2nd
Dept. 1991 ), another cited by the Town, similarly is a case where the appraiser's
conclusions as to land value, a critical and significant factor in this replacement
cost case, had no support whatsoever in the record.
The reach of State of New York v. Town of Thurman holding, however, is
limited by subsequent holdings of the Third Department. State of New York v.
Town of Thurman is authority for striking an appraisal where "virtually every fact,
figure and calculation necessary for an understanding of a complex appraisal and
conclusion" is absent from the appraisal. However, the Third Department
thereafter held that there is no fixed method for determining value and any fair and
non-discriminating method that will achieve that result is acceptable. See Golub
26
Corporation/Price Chopper Operating Co. v. Assessor of Queensbury, 282 AD2d
962 (3rd Dept. 2001).
The facts in State of New York v. Town of Thurman, supra, are readily
distinguishable from those here: Petitioner's Appraisal included substantially more
factual material than the Town's Appraisal (e.g., 65 comparable rentals,
petitioner's financial statements and analysis), and Town counsel cross-examined
Mr. Strell for over three hours. Any claim of prejudice is, thus, without merit.
In citing State of New York v. Town of Thurman, the Town ignores the
Fourth Department's holding in Matter of Welch Foods Inc. v. Town of Westfield,
supra, where it was held that although an appraisal was inadequate in some
respects, taken as a whole, it met the requirements of 22 NYCRR §202.59(g)(2)
[the Court was able to weigh the relative merits of the party's appraisals ... ] and
remitted the matter to Supreme Court for further proceedings. Each case presents a
unique situation and it is well accepted that the conclusions of the trial forum will
be disturbed only if arbitrarily made.
In addition, the Third Department in Gullo v. Semon, 265 AD2d 656 (3rd
Dept. 1996), notes that a major reason for the rule requiring the disclosure of facts
and source materials at the appraisal stage is to allow opposing counsel the
opportunity to effectively prepare for cross-examination. Respondent's argument
27
to strike petitioner's appraisal where the appraisal provided "ammunition" for
more than three hours of cross-examination by respondent's counsel has no merit.
Whatever weight the Referee ultimately chose to give to Petitioner's
Appraisal is irrelevant in this regard, but it is clear that the essential purpose of 22
NYCRR §202.59(g)(2)- to provide opportunity to prepare for cross-examination-
was met as shown by the aggressive and extensive cross examination of Mr. Strell.
4. Failure to allocate aggregate value of the condominium complex
among the units is a question of weight to be afforded to Petitioner's Appraisal.
See National Fuel Gas Supply Corp. v. Goodremote, supra, and Champlain
National Bank v. Brignola, supra.
In arguing that failure to allocate a separate value for each parcel requires
dismissal of the petition, the Town relies upon Matter of East Medical Center v.
Assessor of the Town of Manlius, 16 AD 3d 1119 (4th Dept. 2005). In Matter of
East Medical Center, the subject condominium property was a medical office
condominium in a complex in the Town of Manlius. Some of the units were fully
finished and others were in the beginning stages of construction, and the decision
and opinion suggests values varied significantly. The issue in Matter of East
Medical Center was that case was whether Supreme Court properly utilized data
from comparable condominium sales to apportion the value of the individual units.
28
Since the units in this case were in various states of construction, the facts
are readily distinguishable from those in this case and the language quoted by
respondent for the proposition that all units must be valued is dicta and clearly not
dispositive of that issue here.
Matter of Stock v. Baumgarten, 211 AD2d 1008 (3rd Dept. 1995), also cited
by the Town likewise provides scant support for its argument for dismissal of the
petition. The subject property in Matter of Stock v. Baumgarten was five
contiguous tax parcels comprising an aggregate 89 acres. During trial, petitioners
offered into evidence an appraisal report, which among other things, estimated the
total value of the 89 acres without estimating a separate value for each of the five
parcels and the testimony of petitioner regarding the purchase price of the parcels
in the first of the three years being challenged. Respondent moved to strike
petitioner's appraisal as violative of 22 NYCRR §202.59(g). The Third
Department upheld Supreme Court's exclusion of petitioner's appraisal report on
the grounds that 22 NYRR §202.59(g)(3) requires separate appraisal reports for
each parcel appraised and the report was also lacking the required conclusions as to
the value reached by the expert, together with the facts, figures and calculations as
to value as required, but reversed on the ground that petitioner's testimony as to
purchase price showed a credible dispute.
29
Matter of Stock v. Baumgarten is readily distinguishable from the issues in
this matter relative to assessment of the condominium.
Atkin v. Assessor of Town of Greece, 50 AD3d 1496 (4th Dept. 2008), does
little to change that result. In Atkin v. Assessor of Town of Greece, the subject
property included three contiguous tax parcels comprising industrial property in
the Town of Greece. The Town of Greece argued that there is an immutable rule
that an appraisal which fails to separately assess each tax parcel must be struck,
regardless of its probative value on the ultimate issue in the proceedings. The
Fourth Department affirmed a Supreme Court decision holding that neither RPTL
§706(2) nor 22 NYCRR §202.59(g)(2) & (3) provides for such a result and cited
several cases which could not have been decided had respondent's reading of the
law been correct. The holding in Atkin v. Assessor of Town of Greece is contrary
to the relief requested by the Town.
5. Petitioner's Appraisal contains sufficient facts, figures and
calculations to show a credible dispute regarding valuation of the Condominium.
Gullo v. Semon, supra, and Matter of Bialystock & Bloom v. Gleason, 290 AD2d
607 (3rd Dept. 2002).
The Town alleges Petitioner's Appraisal did not include sufficient facts,
figures and calculations regarding comparable market rents and, the manner in
which Mr. Strell determined rental rates for the condominium units. Citing Gullo
30
v. Semon, supra, and Matter of Bialystock & Bloom v. Gleason, supra, the Fourth
Department found sufficient facts figures and calculations in Petitioner's Appraisal
so that the Town was not prejudiced in cross-examination.
In Matter of Bialystock & Bloom v. Gleason, supra, respondent argued that
22 NYCRR §202.59(g)(2) required a detailed narrative explaining each
adjustment. The Court rejected that argument [petitioner was not required to
provide a detailed narrative ... explaining each of the adjustments ... ], finding that
the appraisal there "contained sufficient details necessary to examine the
comparable sales used in its conclusions and provided respondent with ample
information supporting those conclusions." The Court affirmed denial of
respondent's motion to strike petitioner's appraisal.
In Gullo v. Semon, supra, the Third Department addressed the sufficiency of
an appraisal and noted the major reason for the rule requiring facts and source
materials is to allow the opportunity to prepare cross-examination. See Point 2
above. The adjustments in Petitioner's Appraisal were the subject of substantial
cross-examination - regarding the summary nature thereof and the basis for them.
In vigorous and lengthy cross-examination of Mr. Strell (commencing at
838, 951), the Town's counsel notably (a) focused upon the approximately 120 (65
non duplicative) data points used to determine market rents for the condominium
units: comparability, verification and accuracy of the assumptions and adjustments
31
m regard thereto and (b) challenged the 9.5% OAR adopted m Petitioner's
Appraisal.
As shown by cross-examination of Mr. Newton, however, the adjustments in
the Town's Appraisal, while adorned in precision, were nakedly erroneous in some
cases and arguably at least as subjective as those in the MBA Appraisal (974-976,
989-998). Among other things, Mr. Newton could not justify his projected rents
vis a vis the limited market for rentals at monthly rents in excess of $1,500 (999-
1001).
32
B. THE FOURTH DEPARTMENT WAS
CORRECT WHEN IT AFFIRMED SUPREME
COURT AND HELD THAT PETITIONER
SHOWED BY A PREPONDERANCE OF THE
EVIDENCE THAT THE CONDOMINIUM
UNITS WERE OVERASSESSED
Respondent conflates the required rebuttal of the presumption of validity and
petitioner's burden to prevail in the proceeding by preponderance of the evidence.
In Matter of Gordon v. Town of Esopus, 296 AD2d 812 (3rd Dept. 2002), the Third
Department reversed Supreme Court, which impliedly had found that petitioner's
evidence - its appraisal and testimony, failed to rebut the presumption of validity.
The Third Department held that it was incumbent upon Supreme Court to arrive at
a value for the subject property based upon the competing evidence. The Town is
now asking this Court to hold that Supreme Court's weighing of the evidence, and
affirmation thereof by the Fourth Department in the Memorandum and Order, is
erroneous as a matter of law and to arrive at a value of the Condominium without
considering the substantial evidence introduced by Petitioner. One cannot contort
the holding of Matter of Gordon v. Town of Esopus to support that proposition.
After holding Petitioner provided sufficient evidence of a credible dispute,
the Fourth Department weighed the entire record and also held that the Referee's
determination with respect to the final capitalization rate is supported by a fair
interpretation of the evidence. Matter of City of Syracuse Industrial Development
33
Agency (Alterm, Inc.), 20 AD3d 168 (4th Dept. 2005); Matter of Greater New York
Savings Bank v. Commissioner of Finance, 15 AD3d 661 (2nd Dept. 2005) and
Matter of Addis Co. v. Srogi, 79 AD2d 856, lv denied, 53 NY2d 603 (1981) ;
Matter of Schoeneck v. City of Syracuse, 93 AD2d 988 (4th Dept. 1983).
Cross-examination of Mr. Newton in regard to the Town's Appraisal
focused on the capitalization of income methodology he utilized. During cross-
examination, (1001 et seq., Exhibits 4 and 8), it was shown Mr. Newton testified,
among other things:
(i) land value was immaterial when a property is valued using an income
based methodology 14 (985-989);
(ii) his verification techniques and information supporting alleged
comparable properties were similar to efforts by Mr. StreB (989-990);
(iii) his "Equity Yield Rate" of 10% (part of his determination of a
capitalization rate and equivalent to a "cash on cash" return) was selected without
any support based on his experience (1006);
(iv) the hypothetical loan scenario presented in the Town's Appraisal was
not available to any, but larger, high quality credit worthy individuals and entities
(1 004-1 006);
14 Mr. Strell in direct examination had already testified to that effect. (779-780)
34
(v) he utilized the "mortgage equity technique" (1001) to capitalize
income, a technique that melds the cost of debt with the selected "Equity Yield
Rate" (10% ), yet ignored the claimed reasons for doing so:
appreciation/depreciation was assumed to be zero, return on equity investment was
ignored and the earnings stream was not truncated at 10 years ( 1043 );
(vi) he assumed a loan term of 20 years, interest at rate of 6.5% and a 75%
"loan to value" ratio, but was unable to assure that such terms were actually
available to all investors and the verification of these terms was nothing more than
Mr. Newton's assurances that he spoke with bankers in WNY and a national
survey ( 1003-1 006);
(vii) that (A) a change in loan to value ratio would change the
capitalization rate and the ultimate value of the Condominium: a decrease in such a
ratio would increase the capitalization rate and decrease the Condominium value so
determined ( 1010-10 17), (B) if borrowing was reduced to zero (a "cash on cash"
deal), the capitalization rate would be the "Equity Yield Rate" (10%) and the value
of the Condominium would be substantially less than he determined (1014-1019)
and (C) he did not analyze sensitivity of the end result to variations in the loan to
value ratio (1014);
(viii) he could not explain why interest expense wasn't considered an
expense in determining the hypothetical NOI (1035-1039);
35
(ix) he did not understand the calculations in the capitalization of income
analysis, having relied instead upon software with which he was not familiar
( 1030-1031 );
(x) he could not identify where the assumed 10 year holding period and
other assumptions underlying selection of the "Mortgage Equity Method" were
included in his determination of the capitalization rate ( 1007-1 008);
(xi) cash flow to the investor in the hypothetical loan scenario in the
Town's Appraisal was never considered ( 1044-1 048);
(xii) without financing, the applicable rate of return (capitalization rate)
would be Mr. Newton's "Equity Yield Rate," which he determined (without any
support) to be 10% (1015-1019);
(xiii) he was familiar with the axiom that, "the value of an asset is equal to
the sum of the present value of its future income stream" and that such axiom does
not implicate financing and admitted that the decision to purchase an asset at a
specific price is distinct from the decision whether and how to finance the purchase
(1019);
(xiv) there was a cost to borrowing money and agreed that, as shown on the
amortization schedule admitted as Petitioner's Exhibit 8, there was an interest cost
over the life of the loan of approximately $3,000,000 or $150,000 per year (1035-
1039);
36
(xv) he was unable and refused to analyze the cash flow to the fictional
investor in his loan scenario, i.e., net operating income as determined in the EHNP
Appraisal ($535,423), less (i) debt service (principal and interest) of $28,406 per
month or $340,876 per year and (ii) real property taxes (including special district
taxes) of $165,135 per year, which leaves the investor only $29,412 as an annual
cash return, a very unattractive amount, suggesting a very risky investment at that
price and one unlikely to obtain funding at 6.5% (1044-1048): and
(xvi) he was unable to justify either financially or economically not
including borrowing costs (interest expense) in the determination of projected net
operating income of the property as residential rental property ( 1035-1043 ).
The Town's Appraisal utilizes an inappropriate methodology to capitalize
the NOI determined by Mr. Newton. This methodology commingled the decision
to buy with the decision on whether and how to finance, and by doing so lowered
the capitalization rate. The lower rate resulted in a significantly higher appraised
value than would have been obtained using Mr. Newton's Equity Yield Rate
without borrowing. (See footnote 8 herein.) Finally, Mr. Newtown's scenario
would leave virtually nothing for the investor after payment of debt service and
real property taxes. Given the foregoing, affording little, if any, weight to the
Town's capitalization rate was not error.
37
In Matter of Connecticut Mutual Life Insurance Company v. Srogi, 101
AD2d 698 (4th Dept. 1984 ), both parties appealed a judgment and order reducing
the assessment on certain property in Syracuse, New York. Connecticut Mutual's
appraisal utilized market data and economic methods (presumably, capitalization
of income) and the referee whose report was confirmed by the order to which
appeal was taken, employed an economic method and used slightly different
variables than used by petitioner's appraiser. Without explanation, the referee then
raised the market value by approximately 10%. The Fourth Department rejected
the unexplained increase.
The Town mis-cites Matter of Connecticut Mutual Life Insurance Company
v. Srogi for the proposition that "market value cannot be established arbitrarily."
The arbitrary action in that case was taken by the court below, not the appraiser as
implied by the Town. As such, the holding in Matter of Connecticut Mutual Life
Insurance Company v. Srogi supra, is inapposite here, unless the Town is arguing
the Referee's rejection of the capitalization rate in the Town's Appraisal was
arbitrary. Given the testimony by Mr. Newton, such an argument has no merit.
See Matter of Blue Hills Plaza Associates v. Town of Orangetown, 230 AD2d 846
(2nd Dept. 1996), lv denied, 89 NY2d 804 (1996). Matter of Rice v. Srogi, 70
AD2d 764 (4th Dept. 1979).
38
In Matter of 50540 Realty Inc. v. City of New York, 136 AD2d 699 (2nd
Dept. 1988), another case cited by the Town, the Second Department held the court
below did not err in placing little weight on the petitioner's expert's appraisal
where the appraisal contained inconsistent and unexplained conclusions which
were not supported by the facts, figures and calculations relied upon to reach those
conclusions.
Given the Newton testimony and the Supreme Court Decision, it is beyond
question that the flaws regarding determination of a capitalization rate in the
Town's Appraisal, as evidenced by cross-examination of Mr. Newton, justified
little weight as accorded to it by the Fourth Department and Supreme Court.
Opinion evidence of appraisers is competent evidence of a capitalization
rate. Matter of Greater New York Savings Bank v. Commissioner of Finance,
supra. Given the testimony showing numerous substantial flaws in the Town's
capitalization rate, Supreme Court did not err when it chose to apply that of
Petitioner and the Fourth Department majority correctly affirmed the Supreme
Court Order.
In the majority opmwn, the Fourth Department notes that the standards
requested by the Town would "stifle" the ability to challenge a tax assessment and
recognized the Town is asking for new law in its appeal.
39
C. THE FOURTH DEPARTMENT WAS
CORRECT WHEN IT AFFIRMED SUPREME
COURT AND HELD ADOPTION OF THE
TOWN'S NOI AND APPLICATION OF
PETITIONER'S CAPITALIZATION RATE
WAS NOT ERROR15
The main issue of contention raised by the Town was the use by Supreme
Court of the Petitioner's capitalization rate in valuing the Condominium. In this
regard, the Fourth Department, citing Matter of Schoeneck v. City of Syracuse,
supra, held that it was not error for Supreme Court to reject the capitalization rate
determined and utilized in the Town's Appraisal and adopt the capitalization rate
determined and utilized in Petitioner's Appraisal, since it is within the range of
expert testimony and supported by the evidence. The Fourth Department rejected
Mr. Newton's capitalization rate on the same grounds as stated by Supreme Court.
Matter of City of New York (Oceanview Terrace), 42 NY2d 948, (1977).
Here again, the Fourth Department found sufficient information m
Petitioner's Appraisal for the Town to adequately prepare for cross-examination
regarding Mr. Strell' s determination of the capitalization rate and any weaknesses
therein would go to weight to be afforded thereto. See Mr. Strell' s direct
examination 738-740 and 758-763 and cross-examination 931-948 and 951-958;
15 As recognized by the majority of the Fourth Department, the contentions of the Town and
dissent would make new law and would stifle the ability of taxpayers to challenge tax
assessments. Ironically, the dissent claims the majority would make new law despite the
overwhelming case law cited in the majority opinion, in Petitioner's brief before the Fourth
Department and herein.
40
National Fuel Gas Supply Corp. v. Goodremote, supra, and Champlain National
Bank v. Brignola, supra.
that:
As the Referee noted in the Supreme Court Decision (25), it is well settled
Where capitalization of income is the proper
valuation procedure and one expert utilizes
that method, a court is not required to adopt
that testimony per se but may use all the
evidence in the record in order to establish
fair market value." (quoting Matter of City
of New York (Oceanview Terrace), supra.)
The capitalization rate and related income and expenses "are fact findings
and it is familiar law that they will be upheld if they are in the range of testimony
and are supported by the record." Onondaga Savings Bank v. Cale Development
Co., Inc., 63 AD2d 415 (4th Dept. 1978); Matter of City of Rochester v. Lubelle,
17 4 AD2d 100 (4th Dept. 1991) [it is an issue of fact dependent upon the proof and
arguments in any particular case]; Matter of Burke Apts. v. Swan, 137 AD2d 321
(3rd Dept. 1988) citing Matter of Continental Assurance Co. v. Village of
Lynbrook, 113 AD2d 795 (2nd Dept. 1985), app dis'd, 66 NY2d 915 (1985) ;
Kumick v. State of New York, 54 AD2d 1098 (41h Dept. 1976) [Thus the
capitalization rate has been held to be a fact question for the trial court on which
expert opinion of appraisers is competent evidence].
41
In Kurnick v. State of New York, supra, the Fourth Department held that
there was no fixed rule as to the determination of the appropriate capitalization
rate:
The rate of capitalization ... should be ... a
reflection of the market rate, that is, what the
investment market requires in return from a
property of the age, kind, condition and
location as the subject property. As such, it
is a matter for proof and argument.
(quotations and citations omitted).
See Onondaga Savings Bank v. Cale Development Co., Inc., supra, [There are no
fixed rules for establishing a capitalization rate]; Matter of City of Rochester v.
Lubelle, supra.
The OAR determined in Petitioner's Appraisal represents the "cash on cash"
return to investors without consideration of financing. It was specifically
determined by reference to recent sales of apartment complexes in Western New
York (762-763). While the Town's counsel in cross-examination of Mr. Strell
attempted to attack the transactions utilized where some of the properties had been
resold, Mr. Strell properly explained he used the prior sales (still within a
reasonable time of the valuation date) because he had financial information in
regard thereto. In addition, the Town's counsel attacked Mr. Strell's use of
projected revenues in connection with such transactions (937 -939), ignoring, or
apparently not knowing, that projected revenue is the basis upon which such real
42
estate or any income producing assets are purchased. One cannot buy yesterday,
only tomorrow ... and tomorrow cannot be audited today. 16 (938)
The capitalization rate determined by Mr. Strell conforms precisely with the
instruction in Kumick v. State of New York. That capitalization rate represents
Mr. Strell's opinion of what return the investment market requires from residential
rental property. Accordingly, Supreme Court properly disregarded the
hypothetical capitalization rate proffered in the Town's Appraisal and utilized that
determined in Petitioner's Appraisal.
The dissent would disregard Mr. StreB's capitalization rate because it is
based on his experience ("personal exposure"), the very essence of expert
testimony. See Argument A herein at p. 19. Where the majority found hours of
cross-examination in regard to the capitalization rate showed sufficient facts,
figures and calculations in Petitioner's Appraisal and Mr. StreB's testimony, the
dissent, choosing to ignore the hours of cross-examination of Mr. Strell, does not.
The dissent claims "countless other cases have come before this Court in
which conflicting expert appraisers have had no trouble collecting the data and
documents necessary to establish an evidentiary foundation for their opinions with
respect to capitalization rate and we do not see anything remarkable here to excuse
16 We also note the Town's apparent further misunderstanding of capitalization of income. See
Preliminary Statement herein at p. 15.
43
petitioner's appraiser from that task." Yet, there is no citation supporting that
statement. Not one.
The dissent makes much of the difference between the Condominium
property to be valued in this case and the comparable apartment complexes sold
upon which Mr. Strell based his capitalization rate. That argument has no merit. It
confuses the use of comparables for purposes of sale price and for purposes of
determining a capitalization rate and ignores the process undertaken in assessing
condominiums as mandated by RPL 339-y and RPTL 581. 17
The cases cited by the dissent do not support the holding therein. In Matter
of Thomas v. Davis, 96 AD3d 1412 (4th Dept. 2012), lv denied, 101AD3d 1699, lv
denied, 21 NY3d 860 (2013), taxpayer Thomas appealed an order denying his
RPTL Article 7 petitions regarding assessment of his mobile home park. The
Fourth Department unanimously modified the order, striking the petitions
challenging the assessments, but in part reducing the assessments. There were two
issues that the Court found justified Supreme Court's conclusion that petitioner
Thomas failed to meet the burden of establishing by a preponderance of the
evidence that the assessments were excessive. First, petitioner Thomas's expert
17 In essence, the dissenters disagree with the opinion of the majority regarding the weight
to be afforded to evidence of capitalization rates. A weight of the evidence determination is a
question of fact, one that this Court has no power to review, except when the Appellate Division
has found fact contrary to the findings in that regard by Supreme Court. See CPLR 5501(b);
Glenbriar Co. v. Lipsman, 5 NY3d 388 (2005); Heary Bros. Lightning Protection Co. v. lntertek
Testing Services, N.A., Inc., 4 NY3d 615 (2005).
44
submitted an appraisal that used two methods of calculating the value of the
subject parcels, the income and market approaches, and then elected a value
different than determined by each method, without explaining how he reconciled
the value so determined. Second, the expert repeatedly testified that he assigned a
value to the units within the two parcels substantially different than the price at
which those units had been sold during the period in question. See Matter of
Stock v. Baumgarten, supra.
Given that a recent sale of a property between a seller under no compulsion
to sell and a buyer under no compulsion to buy is the best evidence of value, the
Fourth Department properly refused to credit petitioner Thomas's appraiser's
valuation. However, this Court did hold that the Supreme Court was required to
consider the entire record and that portions of respondent's appraisals constituted
admissions against interest that the assessments were excessive. Thus, the order
was modified.
It is unclear why the dissent cited a case with such disparate facts from the
case at bar. Furthermore, the Fourth Department's conclusion in Matter of Thomas
v. Davis that respondent's appraisal required the court to modify the order strongly
supports rejection by both the Fourth Department and Supreme Court of the
Town's capitalization rate and weighing the entire record to arrive at an
appropriate valuation.
45
Then, after citing Matter of Greater New York Savings Bank v.
Commissioner of Finance, supra, and Matter of Addis Co. v. Srogi, supra, the
Court in effect rejects the holdings therein and relies upon Kumick v. State of New
York, supra, and the Matter of Niagara Mohawk Power Corp. v. City of Cohoes
Board of Assessors, 280 AD2d 724 (3rd Dept. 2001), lv. denied, 96 NY2d 719
(2001) for the proposition that an appraisal cannot simply list financial figures of
comparable properties that are derived from alleged personal knowledge and must
"prove" those figures to be facts at trial. That proposition is without merit. First,
one does not prove opinion, one proves facts (by a preponderance here) and, since
the great weight of cases in New York provide that opinion evidence of experts is
competent evidence of a capitalization rate, the dissent here swims upstream.
Kumick v. State of New York, supra, was an eminent domain proceeding
and supports the majority opinion in the Memorandum and Order and the Supreme
Court Decision. The pertinent language provides:
In the valuation of property by use of the
capitalization of income approach, there is
no fixed rule as to the rate of capitalization
... , although it has been held that the basis
of the rate used in the specific case must be
established by factual data supporting such
rate . . . As a general rule, the rate of
capitalization should be a reflection of the
market rate, that is, that the investment
market requires in the terms of the property
of the age, kind, condition and location as
the subject property. As such, it is matter
46
for proof and argument . . . thus the
capitalization rate has been held to be a fact
question for the trial court in which the
expert opinion of appraisers is competent
evidence . . . while the court is bound by a
testimony in the record, nevertheless, this
does not mean that an award may never be
higher or lower than the experts estimate of
value; it is only requisite that there be
evidence at hand to support the value
actually found by the court. (emphasis
added; internal citations omitted)
While that language may be paradoxical with respect to the interaction of facts and
opinion, it is clear that the Court after weighing the record has the authority to
select a capitalization rate (a "finding of fact") based upon evidence in the record,
including expert opinion.
Matter of Niagara Mohawk Power Corp. v. City of Cohoes Board of
Assessors, supra, is a "replacement cost" case with absolutely no reference to a
capitalization rate in it. Similarly, Matter of Niagara Mohawk Power Corp. v.
Town of Bethlehem Assessor, supra, is a replacement cost case with no application
here, other than some standard language regarding admission of facts, figures and
calculations and Petitioner's initial burden.
Rochester v. Iman, 51 AD2d 651 (4th Dept. 1976) was a proceeding in
regard to property claimed by the City of Rochester under eminent domain, not an
RPTL Article 7 proceeding. This relatively old case continues the paradoxical
language that "the validity of a capitalization rate depends upon the facts presented
47
in support thereof ... and expert testimony thereof is competent evidence" (internal
citations omitted)
Continuing the search outside of the RPTL Article 7 proceedings for case
law to support the dissenting opinion, the dissenting justices next cite Wagman v.
Bradshaw, 292 AD2d 84 (2nd Dept. 2002), a personal injury matter for the
proposition that "rules of evidentiary foundation are restrictive, and intentionally
so." Relevant language in Wagman v. Bradshaw is:
It is well settled that, to be admissible,
opinion evidence must be based on one of
the following: first, personal knowledge of
the facts upon which the opinion rests;
second, where the expert does not have
personal knowledge of the facts upon which
the opinion rests, the opinion may be based
upon facts and material in evidence, real or
testimonial, third, the material not in
evidence provided that the out-of-court
material is derived from a witness subject to
full cross-examination; and fourth, material
not in evidence provided the out-of-court
material is of the kind accepted in the
profession as a basis in forming an opinion
and the out-of-court material is accompanied
by evidence establishing its reliability.
(emphasis added)
48
The first and third bases for admissibility of opinion evidence apply to Mr.
Strell's testimony in regard to the capitalization rate. 18 This case, too, supports the
majority opinion in the Memorandum and Order and the Supreme Court Decision.
In the Matter of Northern Pines Mhp, LLC v. Board of Assessment Review
of the Town of Milton, 72 AD3d 1314 (3rd Dept. 2010), the issue was whether
Supreme Court had correctly found that petitioner had demonstrated by a
preponderance of the credible evidence that the subject property had been over
valued. The Third Department stated:
In arriving at this determination, the court
was required to weigh the entire record,
including evidence of claimed deficiencies
in the assessment, to determine whether
petitioner had established by a
preponderance of the evidence that its
property had been overvalued. . . . Our
review of such a determination must
necessarily defer to Supreme Court in its
resolution of any credibility issues that have
been generated by the conflicting expert
opinions . . . and is limited to whether the
court's determination of the fair market
value of the subject property is supported by
or against the weight of the evidence.
(internal citations and quotations omitted)
The quote goes on to note that Supreme Court rejected respondent's
appraisal in that case because the appraiser used dated comparable sales in his
18 Notably, the Court goes on to provide "it is this fourth basis for positing an opinion,
commonly known as the "professional reliability" basis, which is implicated in this matter."
Professional reliability is not implicated in this case.
49
market comparison analysis and failed to present any evidence that the sale of the
property just prior to the period in question was not an arms length transaction.
Again, consistent with New York law, a recent sale trumps "opinion" evidence-
an appraisal. Matter of Stock v. Baumgarten, supra.
Star Plaza, Inc. v. State of New York, 79 AD2d 746 (3rd Dept. 1980), is
another eminent domain case which supports the majority opinion. As the matter
is described by the Third Department,
In support of its assertion that the Court of
Claims erred in calculating the amount of
the award for consequential damages, the
State argues that the capitalization rate
found by the court rests on the appraiser's
unsupported opinion rather than on any
factual data. This argument fails.
The Third Department goes on to describe the opinion evidence upon which
it relied for its conclusion and then goes on to say:
The proper capitalization rate is a factual
question for the trial court in which the
expert opinion of the appraisers is competent
evidence .... In the case of income property,
such as a shopping plaza, the factors
considered are those which are most
probative of the future rate of return
demanded by the investment market ...
Since the award of the Court; of Claims falls
within the range of the testimony in and is
supported by the record, there appears to be
no reason to disturb it.
50
This language lends great support to the majority opinion of the Fourth
Department in the Memorandum and Order affirming Supreme Court.
At this point, the dissenting justices discuss comparable sales. Apparently
because Mr. Strell' s relied upon sales of comparable rental units to inform his
determination of a capitalization rate, the dissenting justices suggest that cases
regarding comparable sales for valuation purposes are applicable to the use of
comparable sales to determine a capitalization rate. That proposition is not sound
In Chase Manhattan Bank, N.A. v. State, 103 AD2d 211 (2nd Dept. 1984),
another eminent domain case, the central issue was a proper valuation of classified
wetlands taken in condemnation, where the claimants argued that the restrictions
upon the use of the wetlands are themselves confiscatory. The only language in
the case at all relevant does not support the dissenting opinion, since comparable
sales were the basis for valuation, not capitalization of income:
The suitability of comparable sales is a
matter resting within the sound discretion of
the trial court . . . and there is adequate
evidence in the record to support the court's
adoption of claimant's comparables and its
rejection of the State's comparables.
Differences in the size of the comparables
are proper subjects for adjustment and the
court rejected the adjustment made by
claimant's appraiser in this respect and made
its own. (at p. 222)
51
Adjustments such as size are irrelevant where the comparable sales were
used solely to determine the market's appropriate capitalization rate. See
Preliminary Statement herein at p. 16.
Niagara Falls Urban Renewal Agency v. 123 Falls Realty, Inc., 66 AD2d
1009 (4th Dept. 1978), lv denied, 46 NY2d 997 ( 1979), also fails to support the
dissent's position. This case, too, involves the applicability of the use of
comparable sales to value real property, not capitalization of income. Relevant
language in this case is a follows:
While the comparables may leave much to
be desired, the trial court could accept
[them] as the best basis for evaluating the
property and with the proper adjustment for
[their] differences from the instant property
utilized them . . . The differences between
the comparables and the difference between
them and the subject property are the proper
subject of adjustment by expert witnesses
and the degree of comparability becomes a
question of fact . . . His explanation of
necessary adjustments of the comparable
properties to the subject properties lends
probative value to the opinion of this expert
witness ... The appraiser's evaluation was
supported by more than his bald expression
of value and he provided the supporting data
as to the method by which he arrived at his
conclusion ... and the factors which entered
into his judgment . . . In the present case,
both evidentiary support and an adequate
explanation justify the trial court's findings
and there was evidence at hand to support
52
the value actually by the court. (internal
citations and quotations omitted)
That language from this case precisely describes the evidence Petitioner
presented before Supreme Court at the hearing in this matter.
Citing Katz v. Assessor of Mt. Kisco, 82 AD2d 654 (2nd Dept. 1981) for the
proposition that comparability does not connote identity, does not advance the
dissent's opinion. In that case, the Second Department states:
It is well settled that a trier of fact in a
valuation case is not bound by opinion
testimony where there exists in the record
substantial independent evidence on which
to base its finding .... A finding of value
will not be disturbed if it is sufficiently
explained and if it is based on substantial
evidence in the record rather than on the
subjective judgment of the court. . . . Under
the circumstances at bar, we cannot say that
Special Term abused its discretion in
disregarding the opinion testimony of Ms.
Katz' expert.
Once again, that language describes precisely the determinations by
Supreme Court and affirmed by the Fourth Department. The Referee here
described in detail the basis for rejecting the Town's Appraiser's capitalization
rate, which reasons were affirmed by the Fourth Department, and based her
selection of the capitalization rate on substantial evidence in the record.
In Matter of Acquisition of Real Property by the County of Dutchess, 186
AD2d 891 (3rd Dept. 1992), another case decided under the Eminent Domain
53
Procedure Law. Petitioner appealed from a judgment striking the appraisal report
of its experts and adopting that of the county's expert. The issue in the case was
adjustment of comparable sales. The most applicable language in the case is a
statement that, "the differences between the comparables and the subject property
are the proper subject of adjustment by expert witnesses, creating a question of fact
as to the degree of comparability." To the extent that comparable sales are relevant
in this case, that issue seems to be a question of fact for the trial court to decide, as
determined by the majority in the Memorandum and Order.
In another eminent domain case, Geffen Motors, Inc. v. State, 33 AD2d 980
(41h Dept. 1970), the Fourth Department (many years ago) addressed an appeal by
the State from an award for the appropriation of land and improvements. The issue
to be determined was the value of the land: the opinions thereof by appraisers and
adjustments of comparable sales for valuation purpose, not a capitalization rate.
The Fourth Department ordered a new trial on the basis that lack of explanation of
adjustments of comparables precluded it from a proper review of testimony and
held that such adjustments were insufficient to justify an award. By citing that
case, the dissent shows it is challenging the fmding by both the majority and
Supreme Court that there were adequate details in the record.
Because the great weight of applicable case law supports the majority
opinion and Supreme Court, the dissent relies upon eminent domain valuations and
54
replacement cost valuations in RPTL Article 7 proceedings to support its holdings.
That the dissent must rely on such cases shows its holding would be a departure
from existing analysis and make new law.
Most telling in this regard is that the cases cited in the dissenting opinion
support the holding of the majority.
D. THE TOWN'S BRIEF IGNORES WELL
ESTABLISHED LAW
In Point I of its brief, the Town argues Petitioner's Appraisal should have
been stricken because (A) it failed to comply with the Uniform Rules (22 NYCRR
259(g)) and (B) Mr. Strell violated USPAP. 19
The response to the Town's second argument is simply that appraisers in
RPTL Article 7 proceedings need not be licensed and that USP AP compliance is
not mandatory. Furthermore, since Mr. Strell was compensated on an hourly basis,
he violated no statute or rule in the course of representation of Petitioner in this
matter, including initial consulting efforts.
The Town next argues that Petitioner's Appraisal lacks the facts, figures and
calculations in regard to (i) each Condominium unit required by the Uniform
Rules; (ii) comparable rental units selected by Mr. Strell and adjustments made to
19 As noted in Argument A herein at p. 19 and in footnote 11 at p.15 hereof, both the majority
and dissent determined Petitioner met the substantial evidence standard.
55
such comparables; and (iii) selection of rental value per square foot used m
determining gross income and eventually NOI.
Each of the Town's criticisms of Petitioner's Appraisal in this regard is
either without merit or goes to the weight to be given to Petitioner's Appraisal.
(i) There was no information in the appraisal about the interior layout or
finishes of the subject units. See the Memorandum and Order. (1133)
(ii) (A) The so called comparable rental properties were not shown to
be and are not comparable.
This assertion ignores the MLS listing and the numerous other comparable
rentals included in Petitioner's Appraisal. Petitioner's appraiser comprehensively
reviewed the entire market in the Town for condominiums and other residential
rental properties in an effort to determine the appropriate rental rates to be
attributed to the condominium.
(B) None of the information about the alleged comparables Is
capable of verification (nor was it claimed to be verified).
This assertion has no merit whatsoever. First, as pointed out in Mr.
Newton's cross-examination, in regard to rental rates for his claimed comparables,
he relied on the same level of verification as included in Petitioner's Appraisal,
essentially, "I spoke with John Doe" (989-991) and sources not included in the
Town's Appraisal (974-975). In addition, Mr. Strell testified that based on his
56
representation of Castlebrook and Oakbrook Condominiums, he had personal
knowledge of the actual rentals at these condominiums. Respondent had an
opportunity to cross-examine Mr. Strell in great detail in this regard.
(C) There is no information regarding the lease dates, parties, terms
or lease documents provided.
Such an assertion is clearly not applicable to the MLS listing, which
typically represents leases for one year or more in Western New York and is well
respected source of market information. Absent extraordinary circumstances in
connection with the lease (such as a lease to a family member in connection with
one of the units at the condominium), the information presented or lack thereof to
which the Town objects goes to the weight to be given to the MBA Appraisal.
(iii) There was no explanation of, or data to support, any adjustment to the
comparables.
This allegation by the Town has no merit as well. An appraisal by nature
requires an appraiser to make adjustments to so called comparable properties in
order to arrive at an opinion regarding the subject property. The Town's argument
here is strictly one in favor of an illusion of precision versus accuracy. While the
Town's Appraisal quite confidently alleges specific amounts for various amenities,
e.g. fireplace, this opinion as to the value of such an amenity was unsupported
anywhere else - there is no study or analysis of the value specifically of fireplaces
57
any where in the Town's Appraisal. That apparent precision is based upon an
imprecise estimate and, is thus logically incorrect. Contrary to the Town'
argument, the question is precision, but accuracy In Petitioner's Appraisal, and as
testified by Mr. Strell, the adjustment process in his opinion is not so "fine" that
such specific adjustments can be made and, accordingly, his adjustments were
based upon his conclusion as to the character of the market place based upon his
extensive analysis and knowledge thereof. (961-962) Again, at worst, this alleged
criticism of Petitioner's Appraisal goes to the weight that should be afforded to it.
(iv) There was no explanation for the $.80 to $.90 per square foot
calculation for net rental and no explanation for the per square foot rentals
ultimately adopted.
Alleging this flaw in Petitioner's Appraisal is incredible. More than 65 non-
duplicative residential income properties in the Town were considered, including,
among others, comparable high end condominiums in regard to which Mr. Strell
had personal knowledge of actual rental rates. In his testimony, Mr. Strell
discussed concessions in the market place and included those in his determinations
of appropriate market rents for the units in the Condominium. Finally, Mr. Strell
testified on cross-examination that the modestly different per square foot rentals
ultimately adopted for the units in the Condominium were based upon his
knowledge of the units (interior and exterior) and other rentals in the Town
58
determined in the course of the appraisal. Given the six (only six) allegedly
comparable properties utilized in the Town's Appraisal and the subjective
adjustments made thereto (including lack of consideration of concessions in the
market place for such properties), it is clear that this criticism of Petitioner's
Appraisal is without merit.
(v) There was no allocation of value to the separate Condominium units.
This criticism is a red herring. In Petitioner's Appraisal, the rental value of
each unit is determined to be in the range of $.80 psf to $.90 psf and using that
range of rental value, Mr. Strell calculated differing rental values for each unit of
the Condominium and its hypothetical aggregate gross operating income. Based
thereupon, a value for the entire Condominium was determined- $4,265,000.
As Mr. Strell explained in cross-examination, there are basically two
methods to allocate that amount among the units: pro rata on the basis of square
footage of each unit (the preferred method utilized by the Town Assessor) or pro
rata on the basis of % interest in the Condominium, in each case a clerical task.
Mr. Strell testified that he deferred to the preferences of the Town in this regard
and that the missing calculation that so upsets the Town is, therefore, merely a
clerical task. This alleged flaw in Petitioner's Appraisal is at worst, a matter that
goes to the weight to be given to Petitioner's evidence.
59
(v) The information provided concemmg the capitalization rate was
unverifiable and the properties relied upon were not comparable.
This argument reflects Respondent's limited understanding of capitalization
of income methodologies and capitalization rates in practice. Petitioner's
Appraisal that the OAR is the so called "cash on cash" yield required by investors
or the "Equity Yield Rate" identified by Mr. Newton in the Town's Appraisal. In
Petitioner's Appraisal, recent sales of apartment complexes (in each of which
transactions he was involved) were utilized to determine an appropriate OAR and
properly excluded any consideration of financing. While sales information was
available from the Office of the Erie County Clerk, Mr. Strell testified that he had
at the time of each sale reviewed projected receipts and disbursements, that he did
not have the information in his file and that he utilized the projected amounts in
determining the capitalization rate. In the Town's Appraisal, Mr. Newton selected
an Equity Yield Rate of 10% with brief reference to a national report without any
further analysis of any kind whatsoever.
Ignoring case law contrary to its argument (see Argument C herein at p. 40),
the Town instead cites Matter of Central New York Oil & Gas Co., L.L.C. v.
(Porto Bagel, Inc.), 106 AD3d 1152 (3rd Dept. 2013) to support its argument that
Petitioner's Appraisal lacks necessary facts, figures and calculations. Matter of
60
Central New York Oil & Gas Co., L.L.C. v. (Porto Bagel, Inc.) is another case
under the Eminent Domain Procedure Law.
In this case, Supreme Court determined the compensation due claimant for
the property in question as a result of petitioner's acquisition of a pipeline
easement. The Third Department reversed and remitted for further proceedings,
finding first that petitioner's appraisal lacked any factual support for its
conclusions and that claimant was completely unable to cross-examine petitioner's
expert and, second, that claimant's expert's report was inaccurate. In doing so, the
Third Department distinguished adjustments to reconcile differences not required
to be described in a detailed narrative (Matter of Bialystock & Bloom v. Gleason,
supra) from conclusions of entirely separate comparisons not included in the
expert's report. Finding the claimant "completely unable to cross-examine
petitioner's appraiser because the appraiser relied upon market data in his file," the
Third Department reversed and remitted for a new trial.
Matter of Central New York Oil & Gas Co., L.L.C. v. (Porto Bagel, Inc.) is
consistent with Gullo v. Semon , supra and citing it is merely another tactic by the
Town to attack the findings of fact by the majority of the Fourth Department and
Supreme Court that Petitioner's Appraisal contains necessary facts, figures and
calculations. For this case to have any applicability to the case at bar, this Court
would have to reverse the findings of fact of both the Fourth Department and
61
Supreme Court as to the adequacy of facts, figures and calculations in Petitioner's
Appraisal. 20
In Point II of its brief, the Town then argues (as did the dissenting justices)
that even if the alleged flaws in Petitioner's Appraisal are deemed not fatal, Mr.
Strell's capitalization rate is so flawed as to be afforded no weight. Given the
withering cross-examination of Mr. Newton in regard to his capitalization rate and
capitalization of income analysis, the Town's argument would leave no man
standing! Would the Town prefer the use of Mr. Newton's Equity Yield Rate
(10%)?
The Referee in these circumstances properly weighed the evidence and
rejected the Town's capitalization rate and, despite flaws, found Petitioner's
capitalization rate was to be afforded greater weight.
The Town (again as did the dissent) conflates comparables for purposes of
determining value and for purposes of determining a capitalization rate. The Town
argues Mr. Strell relied upon dissimilar properties, made no adjustment for
differences in age, size, etc. of the comparable rental units and ignored that the
comparables he selected were sold after the transactions he relied upon. Each of its
arguments in this regard are non-sequiturs and lack merit.
20 We note that in cross-examination, Mr. Newton admitted his efforts as well relied on material
in his firm's files. (974-975)
62
See Preliminary Statement herein at p. 14 and Argument C herein at p. 39.
Given Mr. Newton's cross-examination, it was apparent to the Referee that Mr.
Strell's analysis was the sounder of the two.
The Town also errs when it argues that if Petitioner's Appraisal is not
stricken, this Court should reduce the Condominium assessment to the assessed
value in the Town's Appraisal- $5,080,000. As Petitioner has shown herein and in
the cross-examination of Mr. Newton, if Petitioner's Appraisal is disregarded, the
proper capitalization rate would be Mr. Newton's "Equity Yield Rate" (10%) and
the value of the Condominium reduced to $4,183,000. See footnote 8 herein.
CONCLUSION
In summary, the Town's case against Petitioner's Appraisal can be
summarized as the glorification of feigned precision over accuracy in an inherently
imprecise undertaking. The Town argues that the apparent precision of the
calculations and adjustments in the Town's Appraisal supports its claim of
accuracy. As shown by the cross-examination of Mr. Newton, the Town's
Appraisal, while perhaps precise, is not accurate, and, thus, both the premise and
conclusion of that argument are without merit.
Petitioner submits that, as found by the Fourth Department, Petitioner's
Appraisal and Mr. Strell's testimony, both direct examination and cross-
examination, demonstrate a valid and credible dispute regarding valuation based on
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sound theory and objective data and show that the capitalization rate found in
Petitioner's Appraisal is the more accurate of the two submitted in this matter by a
preponderance of the evidence.
For the foregoing reasons, the order of the Appellate Division should be
affirmed, or, in the alternative, the Equity Yield Rate determined by the Town's
appraiser be applied to the net operating income he determined and the aggregate
assessment for the condominium units reduced to $4,183,000 and apportioned
among the units on a square foot basis.
Dated: Buffalo, New York
September 18, 2013
AMI
By:
BPO/FrenchOaks/Court of Appeals/Reply Brief-1300910
. . Oliverio, sq.
ain Street
1300 Main Place Tower
Buffalo, New York 14202
Telephone: (716) 852-1300
Facsimile: (716) 852-1344
E-mail: boliverio@amigonesanchez.com
Attorneys for Petitioner-Respondent
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