Opinion
Docket No. 001453-2008 Docket No. 006416-2009 Docket No. 011831-2010 Docket No. 004838-2011
05-10-2012
Cam Gar v. Verona Township
Michael I. Schneck, Esq. SCHNECK LAW GROUP, LLC. Michael A. DeMiro, Esq.
NOT FOR PUBLICATION WITHOUT APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
Mala Narayanan
JUDGE
Via Electronic Mail
Michael I. Schneck, Esq.
SCHNECK LAW GROUP, LLC.
Michael A. DeMiro, Esq.
Block 125, Lot 1; Block 128 Lots 25, 26, 27 Dear Counsel:
This letter constitutes the court's opinion after trial in the above-referenced matters. Plaintiff ("Cam Gar") challenged the assessments imposed by Defendant ("Verona") on an apartment complex located at Runnymede Gardens, 34 Linn Dr., designated as Block 125, Lot 1 and Block 128, Lots 1, 25, 26, 27 ("Subject") for tax years 2008, 2009, 2010, and 2011. The combined assessments for all lots for tax years 2008 and 2009 were as follows:
+------------------------+ ¦Land ¦$1,265,000¦ +-------------+----------¦ ¦Improvements ¦$2,827,800¦ +-------------+----------¦ ¦Total ¦$4,092,800¦ +------------------------+ Pursuant to a district wide revaluation in tax year 2010, the combined assessments for all lots for tax years 2010 and 2011 were as follows:
+-------------------------+ ¦Land ¦$ 8,820,000¦ +-------------+-----------¦ ¦Improvements ¦$ 9,648,400¦ +-------------+-----------¦ ¦Total ¦$18,468,400¦ +-------------------------+ For the tax years at issue, the Chapter 123 ratios for Verona (excluding 2010 because the chapter 123 ratios do not apply in a revaluation year) were as follows:
+----------------------------------------------------------+ ¦Tax Year ¦Chapter 123 Ratio ¦Upper Limit ¦Lower Limit ¦ ¦ ¦ ¦ ¦ ¦ ¦2008 ¦19.64 ¦22.59 ¦16.69 ¦ +----------+-------------------+-------------+-------------¦ ¦2009 ¦19.68 ¦22.63 ¦16.73 ¦ +----------+-------------------+-------------+-------------¦ ¦2011 ¦91.44 ¦105.16 ¦77.72 ¦ +----------------------------------------------------------+ Each expert's value opinion for each tax year was as follows:
+-----------------------------------------------+ ¦Tax Year ¦Cam Gar's Expert ¦Verona's Expert ¦ +----------+------------------+-----------------¦ ¦2008 ¦$11,925,000 ¦$19,285,000 ¦ +----------+------------------+-----------------¦ ¦2009 ¦$15,100,000 ¦$19,290,000 ¦ +----------+------------------+-----------------¦ ¦2010 ¦$11,475,000 ¦$21,000,000 ¦ +----------+------------------+-----------------¦ ¦2011 ¦$15,075,000 ¦$23,130,000 ¦ +-----------------------------------------------+ The court finds the true value for each tax year is as follows:
+-------------------------------+ ¦Tax Year ¦Court's Conclusion ¦ +----------+--------------------¦ ¦2008 ¦$18,709,600 ¦ +----------+--------------------¦ ¦2009 ¦$18,360,000 ¦ +----------+--------------------¦ ¦2010 ¦$18,875,200 ¦ +----------+--------------------¦ ¦2011 ¦$21,064,100 ¦ +-------------------------------+ These values are within the upper and lower limits, therefore, the assessments will be affirmed for the reasons set forth below. PROCEEDINGS
Each party's witness was accepted by the court as an expert qualified to testify as a real estate valuation expert, and their reports were admitted into evidence without objection. Also in evidence were answers to interrogatories, income and expense statements as of December 2009 and December 2010; rent rolls for the Subject for October 1, 2006; October 1, 2007; as of May 1, 2008; October 2009; September 2010; portions of federal income tax returns for calendar year 2005; 2006 and 2007, an income/expense ("I&E") statement attached to the federal tax return which does not identify the source document but is for calendar year 2008, and year-end operating statements with month-to-month breakdown for 2009 and 2010.
At the close of Cam Gar's expert's testimony, Verona moved to dismiss the complaints under R. 4:37-2 on grounds that the expert did not provide any market data or information from publications relied upon in support of his expert opinion and assumptions, thus, he provided a net opinion. Cam Gar argued that its expert's opinion, as a whole, did not merit dismissal because its expert is well-experienced in the field of real estate appraisal; the Subject is a well-managed apartment complex, thus is presumed to be rented and operating at market; its expert's opinions were based on several years of operating income and expenses; and he had provided sufficient evidence of the value of the property to overcome the presumptive correctness of the assessments. The court agreed and denied the motion. See Dolson v. Anastasia, 55 N.J. 2, 5-6 (1969) (in deciding a motion under R. 4:37-2(b), the court is "not concerned with the worth, nature or extent . . . of the evidence, but only with its existence . . . "); MSGW Real Estate Fund, L.L.C. v. Borough of Mountain Lakes, 18 N.J. Tax 364, 379 (Tax 1998) (court uses "'rose-colored glasses'" in viewing the sufficiency of evidence to overcome the presumption of an assessment's correctness, but taxpayer still carries the ultimate burden of persuasion). FINDINGS
I. Property Description
The Subject is comprised of several lots measuring approximately 15.25 acres upon which lies a two-story, 252-unit residential apartment complex housed in 16 detached buildings constructed sometime in 1968. It is well situated in a residential area, amidst other single or multi-family residences and the local schools. The immediate neighborhood is improved with mixed-use commercial properties. It is well-connected to major highways.
Cam Gar's expert testified that there were 31 buildings per the property owner's use of different letters of the alphabet for the different buildings, but conceded that there are 16 discrete structures. He also testified that the Subject was built in 1968 and had 252 units (the same information as contained in his report for tax years 2010 and 2011), thus his report for tax years 2008 and 2009, which noted the Subject was built in 1924 and had 116 units, was incorrect.
The garden-style apartment complex is located on Linn Drive in the western portion of Verona. The red brick and wood designed buildings sit in an irregular shape along the several lots comprising the Subject. There are parking garages for the tenants and surface parking areas. The complex has a laundry facility with coin-operated machines. The experts agreed that the Subject's exterior was in an average to good condition, and the Subject was well-maintained and well-managed. The photographs contained in the reports also evidence the Subject's brick veneer and landscaped surroundings as being well-maintained.
There are 202 three-room (one-bedroom), and 50 four-room (two-bedroom) apartments.There is also one single-family home on the property where a full-time superintendent resides to provide security and as-needed services. The landlord provides appliances including air-conditioning units. Rentals include heat and hot water, but tenants pay for individually metered gas and electric charges.
In the "Subject Rental Analysis" portion of his report for each tax year, Cam Gar's expert noted that there were 189 one-bedroom units and 63 two-bedroom units. However, the rent rolls reveal that there are 202 one-bedroom units and 50 two-bedroom units.
The Subject is located within and legally conforms with Verona's A-1 zone (residential garden apartment permitted). It is subject to a long-standing rent control ordinance with a vacancy de-control provision. Thus, a vacant apartment can be re-let at market rent, and once occupied, is subject to rent control with permitted increases of 5% annually.
Both experts agreed that the highest and best use of the Subject as vacant and improved is its current use as a rental residential apartment complex.
II. Valuation
Both experts agreed, and the court accepts, that the income approach is the most reliable valuation technique since the Subject is income-producing, and thus, an investment property.
Under the income approach, "an appraiser analyzes a property's capacity to generate future benefits and capitalizes the income into an indication of present value." Appraisal Institute, The Appraisal of Real Estate, 445 (13th ed. 2008). The steps involve estimating the property's potential gross rental income, which should reflect the market rents, then deducting an allowance for vacancy and collection loss, and thereafter deducting operational expenses. The resultant net income is capitalized to arrive at the property's value to an investor. In this connection, our courts have accepted the direct capitalization method as the most reliable and appropriate. Hull Junction Holding Corp. v. Princeton Borough, 16 N.J. Tax 68, 84-85 (Tax 1996). Both experts followed the above steps but differed in their analyses and conclusions.
A. (1) Rental Income
Both experts agreed that the annualized contract rents of the Subject were representative of the market economic rent for all four tax years, and thus, its potential gross income ("PGI"). Cam Gar's expert concluded the PGI for tax year 2008 to be $3,038,628, assuming 100% occupancy (his report noting that the Subject had 14 vacant units, thus experienced 96% occupancy). For tax year 2009 he figured the PGI at $3,406,776, assuming 100% occupancy.
For all four tax years, Cam Gar's expert opined that the Subject's rentals were consistent with the market by comparing the average per-square foot rental income of three comparable rental properties. One comparable rental complex was located in Verona, one was located in Glen Ridge (Essex County), and the third was located in Elmwood Park (outside Essex County). He testified that the survey was of limited use because he relied mostly on the Subject's experience.
For tax year 2010, he computed the PGI by first taking the reported gross rental income on the year-end 2009 operating statement, and then adding $1,066 per month (the average monthly rental per one bedroom unit for the vacant one bedroom units) for each vacant one bedroom unit, and $1,230 (the average monthly rental per two bedroom unit) for each vacant two bedroom unit (the vacant units totaling 8), for a total of $3,323,713. Following the same procedure for tax year 2011, Cam Gar's expert determined the projected gross rental income to be $3,478,668.
Verona's expert separately computed, and added to the reported gross income, an amount representing the average annual rent for the vacant apartments for each tax year. For 2008, he used the total rental income reported on the 2007 income tax return. To this he added rental income imputed to 12 vacant units at $1,095 per unit, which he computed by averaging the 2008 rent roll, for a stabilized PGI of $3,251,136.
The math appears to be incorrect since the imputed income of $1,095 per month for 12 vacant units is $13,140, and annualized is $157,680, which when added to the reported rents on the 2007 tax return ($3,093,676) provides a total of $3,251,356.
For 2009, he used the rents as reported on the May 1, 2008 rent roll (as opposed to the higher amount reported on the statement attached to the tax return, on grounds he did not know which tax year the statement pertained to). Similar to tax year 2008, he imputed income to the 12 vacant units at $1,095 per unit and computed the stabilized PGI at $3,313,272.
For tax years 2010 and 2011, Verona's expert used the gross rent income reported on the year-end operating statements. He then added an estimated average monthly rent of $1,200 for each vacant unit (14 units in 2010 and 13 units in 2011) by using the rents reported on the rent rolls, and arrived at PGIs of $3,412,872, and $3,460,802 respectively.
"The crucial factual issue in the income approach to value is the economic rental value of the subject as of" the assessment date. Hahne & Co. v. Township of Rockaway, 8 N.J. Tax 403, 407 (Tax 1986). The annualized actual rents of a well-managed apartment complex are deemed to represent the economic or market rent in the absence of convincing evidence to the contrary. Parkview Village Associates v. Borough of Collingswood, 62 N.J. 21, 34 (1972), reaffirmed by Parkway Village Apartments Co. v. Township of Cranford, 8 N.J. Tax 430, 441-42 (Tax 1985), aff'd, 9 N.J. Tax 199 (App. Div. 1986), rev'd on other grounds, 108 N.J. 266 (1987). Further, the "proper method of arriving at the economic rent for property in a vacancy decontrol transition period, where there is proof of competent management, is to annualize the actual rents as of the assessment date." Fireman v. Township of Randolph, 8 N.J. Tax 264, 271 (Tax 1986), aff'd, 216 N.J. Super. 507 (App. Div. 1987), appeal dismissed, 110 N.J. 294 (1988).
The court finds that Cam Gar's expert's rent conclusion for 2008 of $3,038,628 at 100% occupancy is unsupported. The rent roll as of October 1, 2007, which excludes rents for 10 vacant units, totals $3,156,504. The gross rental income reported on Cam Gar's 2007 tax return is $3,093,676. Both of these numbers are higher than the expert's projection, which presumed 100% occupancy and acceptance of the Subject's rents as being at or around market rentals.
Similarly, Cam Gar's expert use of $3,406,776 for tax year 2009 is not supported. The rent roll for 2008 reflects a total rent of $3,155,992 at 95.2% occupancy. The I&E statement accompanying the 2008 tax return shows a reported gross income of $3,205,473. There is no explanation justifying the expert's PGI, or his computation of imputed rental income, if any, to the vacant units.
Although for tax years 2010 and 2011 Cam Gar's expert testified that he imputed income of $1,066 per month for a vacant one-bedroom unit and $1,230 per month for a vacant two-bedroom unit, he could not explain his method of computation or its breakdown in the PGIs. While he claimed that these were reflected in a spreadsheet calculation, the same was not provided to the court. Additionally, his use of 8 vacant units is questionable since the rent rolls as of October 2009 showed 14 vacancies and as of September 2010 showed 13 vacancies.
Verona's expert's methodology for calculating gross rental income was generally more credible. His method of imputing income to the vacant units was more fully explained, and is reasonable because the experts agreed that the Subject was well-managed. Therefore, the court will accept Verona's expert's methodology for imputing rental income to the vacant apartments as of the assessment date.
However, Verona's expert's computation has certain errors. While he testified that he did not have the complete rent rolls as of October 1, 2007, and thus made certain assumptions as to the number of vacant units and total income, a complete rent roll was in evidence. The court will therefore use the information from the rent rolls as of October 1, 2007 for tax year 2008 since the annualized rent rolls as of the assessing date would be the best evidence of the Subject's potential gross income. See generally, Brunetti v. City of Clifton, 7 N.J. Tax 161 (Tax 1984). According to the rent rolls, the annualized total rent (excluding vacant units) was $3,156,504. The rent rolls also show that there were 10 vacant units as opposed to the expert's estimated 12 units. Thus, the average monthly rent attributable to the vacant units is $1,087 per month, which when annualized ($130,440) and added to the rent roll provides a rental income of $3,286,944.
For tax year 2009, Verona's expert correctly computed the gross income based on the calendar year 2008 rent rolls, or $3,155,592. Although the rent rolls were as of May 1, 2008, the court finds the data reliable because it reflects the circumstances of the Subject relatively close to the valuation date for tax year 2009. The expert also correctly computed the average monthly rental as $1,095, which when imputed to the vacant 12 vacant units on an annual basis, provides a projected gross rental income for tax year 2009 of $3,313,272.
For tax years 2010 and 2011, the court does not find persuasive the expert's use of the total calendar-year rent income from the year-end operating statements because these include two months post-assessment date but with no explanation as to the appropriateness of such inclusion. Pursuant to Brunetti, supra, the October 2009 and September 2010 rent rolls would be usable, however, the information on those rent rolls is confusing.
First, there was no explanation as to what the columns on the rent rolls titled "Tenant rec chgs;" "Charges MTD;" and "Pymts MTD" represented for purposes of estimating the Subject's PGI. The "Charges MTD" column, in at least four instances, shows rent of more than $3,000 per unit per month in 2009, but showed much lower amounts in the following year. Second, the totals of each column differ from the amount reported as the total rents for the same month on the 2009 operating statement. Third, although certain units were identified as vacant, they had dollar amounts listed against each such unit in the "Tenant rec chgs" column. Last, certain units showed a zero dollar amount in the "Tenant rec chgs" column although those units were reported as occupied and showed the same tenant for the following year but with dollar amounts listed on the "Tenant rec chgs" column.
Therefore, the court will use the income reported for the Subject for the month of October on the operating statements, and will annualize these amounts. Fireman, supra, 8 N.J. Tax, at 271. For October 2009, the gross rental income was $271,989. This provides an imputed income of $1,143 per month for each of the 14 vacant units, totaling $16,002, with a projected total of gross rents of $287,991, which provides an annualized PGI of $3,455,892.
For October 2010, the monthly gross rent of $277,240 reported on the year-end operating statement provides an imputed average monthly income for the 13 vacant units of $1,160, which total ($15,080) when added to the monthly total, and annualized, provides a projected gross rental income of $3,507,840.
In sum, the projected gross rental incomes are $3,286,944, $3,313,272, $3,455,892, and $3,507,840 for tax years 2008 through 2011, respectively.
(2) Additional Income
For tax year 2008, Cam Gar's expert used the additional income amount reported for calendar year 2006 of $22,786. For tax year 2009, he used the additional income amount reported on the 2007 tax return of $22,176. For tax year 2010, he included additional income of $22,176, and for tax year 2011 he included $80,626. The expert explained that additional income was only the reported laundry income for tax years 2008 through 2010, and he excluded parking income from all but tax year 2011 because the Subject had no history of reporting such income in the income statements.
For tax year 2008, Verona's expert used the additional income reported on the 2007 tax return. For tax year 2009, he included $25,000 as additional income, a stabilized amount because he was not provided with additional revenues information for calendar year 2008. For tax year 2010, he included $64,735, and for tax year 2011, he included $62,527 maintaining that they represented "clearly delineated items" on the 2009 and 2010 year-end operating statements.
The court finds Cam Gar's expert's use of additional income from calendar year 2006 for tax year 2008, rather than the more current available information (calendar year 2007), not sufficiently justified. Indeed, he testified that he had no real basis for using the 2006 calendar year information. The court will use $22,176 as reported on the 2007 income tax return.
For tax year 2009, there was no evidence other than the tax return for calendar year 2007, and the I&E statement for 2008, which indicated additional income of $22,176. The court will apply the reported amount of $22,176 rather than Verona's expert's estimate of $25,000.
For tax year 2010, the court does not find credible Cam Gar's expert's conclusion of $22,176 for additional income. Cam Gar's laundry income of $24,192 alone is higher than its expert's conclusion. Further, there were other items of income, such as $36,035 for parking income and $3,272.80 for late fee income. That such income was not reported on prior years' operating statements or did not contain a delineation in the tax returns, does not, without more, adequately justify a conclusion that parking or other income was not earned, or that the Subject had absolutely no potential for earning such income.
Although Verona's expert's report appeared to have included only clearly delineated items, it is unclear which items he accepted in concluding an additional income of $64,735. The year-end operating statement for 2009 includes 13 items, however, some appear to be unexplained (such as $43,151.34 "other income" and $1,699 as "court costs & attorney fees") or irregular (such as income from "repairs & maintenance") or questionable (such as income from "electrical and gas utility" income because the tenants pay their own utility bills). Based on the year-end 2009 operating statement, the court finds that additional income should include the recurring income items related to the generation of rental income of the Subject property, thus, will consider income from laundry, parking, late fees, and credit checks.
For October 2009, the Subject reported $2,853 for parking, $2,016 for laundry, $360 for late fees, and $250 for credit checks. Annualizing these October 2009 figures results in total additional income of $65,748 for tax year 2010. For October 2010, the reported income includes $2,718 for laundry, $2,016 for parking, $240 for late fees, and $680 for credit checks. Annualizing the total of these amounts provides an additional income of $67,848. Other than laundry income, the other accepted additional income items varied greatly from month to month on the year-end operating statements. Therefore, the court will stabilize the amounts for an additional income of $62,000 for each tax year 2010 and 2011.
The additional income amounts that will be applied are $22,176, $22,176, $62,000, and $62,000 for tax years 2008, 2009, 2010, and 2011, respectively. Thus, the PGIs for each tax year are $3,309,120, $3,335,448, $3,517,892, and $3,569,840.
B. Vacancy & Collection Loss Allowance
Cam Gar's expert applied a vacancy loss rate of 5% for each year based upon the actual experience of the Subject. He testified that this allowance was reasonable given his experience and expertise.
For tax year 2007 there were 10 vacancies or 3.96%; for tax year 2008 there were 12 vacancies or 4.76%; as of October 2009 there were 14 vacancies or 5.55%; and as of September 2010 there were 13 vacancies or 5.1%.
Verona's expert applied a vacancy and collection loss rate of 4% for tax years 2008 and 2009 and 6% for 2010 and 2011. He reached the vacancy rates by comparing the experience of the Subject to other apartment complexes in Verona and other townships in Essex County (which are also rent-controlled) which ranged from 0% to 6.7%. The Institute of Real Estate Management (IREM) publication indicated a 4.6% to 6% vacancy for garden-style apartments in northern New Jersey for tax years 2008 and 2009, and other publications showed average vacancy rates of 1.7% to 3.5% in tax year 2009, 4.5% to 4.9% in tax year 2010, and 4.2% to 5.3% in tax year 2011.
The court finds that an allowance of 4.5% for tax years 2008 and 2009, and 6% for 2010 and 2011 to be appropriate, as they are stabilized and commensurate with the Subject's experience and its status as rent-controlled. See University Plaza Realty Corp. v. City of Hackensack, 12 N.J. Tax 354, 369 (Tax 1992), aff'd, 264 N.J. Super. 353 (App. Div. 1993), certif. denied, 134 N.J. 481 (1993) (vacancy and collection loss rate "must be predicated on an estimate of the long-term quality and durability of the rental income stream").
Applying these rates provides effective gross incomes ("EGI") of $3,160,210, $3,185,353, $3,306,818; and $3,355,650 for each respective tax year.
C. Expenses
The actual operating expenses of a well-managed apartment complex are generally deemed representative of the market if they are "within normal operating limits." Parkway, supra, 8 N.J. Tax at 441-42. Thus, "if the rentals were driven by market forces but expenses were unusually high, an adjustment must be made to fit the 'well-managed' standard." Equitable Life Assur. Soc. of U.S. v. Township of Secaucus, 16 N.J. Tax 463, 467 (App. Div. 1996) (applying the ruling in Parkview Village Assoc., supra, 62 N.J. at 34-35, to operating expenses). In other words, the actual expenses of a well-managed property, if reasonable and supported by market data, can be properly considered absent contrary convincing evidence. In this regard, the use of both actual and stabilized expenses is acceptable appraisal practice. Maple Court Associates Ltd. v. Township of Ridgefield Park, 7 N.J. Tax 135, 153 (Tax 1984).
There is no dispute that the Subject is a well-managed property. Therefore, its reported expenses are deemed reasonable unless established otherwise. Here, both experts recognized the principle in that they considered and accepted many of the Subject's actual expenses, and stabilized others. The major difference between them was in computing expenses for repairs and maintenance ("R&M") and for reserves.
Tax Year 2008
For this year, Cam Gar's expert considered the Subject's expenses for 2005, 2006 and 2007. He applied the 2006 insurance costs of $100,520 rather than the 2007 costs of $83,100 because he felt that the latter amount was too low. He similarly used the 2006 expenses for utilities, payroll, payroll taxes, garbage disposal, and professional fees/inspections. For advertising and promotions, he provided $12,600 ($50 per unit), an amount far higher than the actual expenses for 2005, 2006, or 2007 on grounds that the building was older, which necessitates a greater advertising expense and stated that his allowance was within the market range. He allowed 5% of the EGI for management expenses.
For R&M, he provided $302,400 ($1,200 per unit), which was lower than the reported amounts for 2005, 2006 and 2007. Although he agreed that this amounted to roughly 10.4% of EGI, and the Subject was well-maintained, he justified the allowance by stating that the expenses were fairly reflective of the Subject's age and its actual experience. He agreed that a percentage basis allowance was an acceptable appraisal method, however, he opined that actual costs or a per-unit basis cost was more reasonable.
For reserves, he provided $297,250 (or $1,179.56 per unit and about 10.22% of the EGI), which comprised of several items such as roof/paving; flooring; painting; and replacements for stoves, windows, air-conditioning units and refrigerators. For each item, he computed a reserve by using its cost spread over the item's estimated life times the per-square-foot ("SF") area. He testified that for each tax year he had relied upon the cost data compiled by the Marshall & Swift Publication Company, a generally accepted data source by real estate appraisers, but conceded that he did not include copies of these excerpts in his reports.
He applied $297,250 as reserves for each of the four tax years involved.
For roof and paving, the cost used was $2.25/SF for 223,245 SF of roof and $2.85/SF for 11,280 SF for paving. For flooring, the cost used was $3.00/SF for 446,490 SF. For painting, the cost utilized was $0.25/SF for 446,490 SF of exteriors and hallways, and $150 per room for 819 rooms. For replacements, the costs utilized were $450 per unit for refrigerator, $375 per unit for stoves, $14.00/SF for 6,552 SF of windows, and $350 per unit of air conditioners. He estimated the average useful lives for these capital repairs as: 16 years for roof and paving; 12 years for flooring; 5 years for painting exterior and hallways and 4 years for painting apartments' rooms; 12 years for refrigerators, 15 years for stoves, 12 years for windows, and 10 years for air conditioning units.
In all, Cam Gar's expert's provision for operating expenses (not counting real estate taxes) was 59.1% of his computed EGI, which he opined was within the normal market range.He testified that an investor would consider the operating expenses of the Subject, and not the expenses of other comparable properties, as an important factor.
The actual expenses for calendar year 2007, which included real estate taxes, was 55.9% of the total income (rent plus additional income) reported on the 2007 tax return of $3,115,852.
Verona's expert calculated expenses on a per-unit basis, and compared the expenses reported to other comparable apartment complexes' expenses. He also cross-checked the accuracy of the Subject's reported expenses with statistical data published by the IREM. He thus accepted the Subject's reported expenses from calendar year 2007 for utilities, insurance, and salaries. Finding the Subject's reported water and sewer expenses to be too low at $327 per unit, he applied a stabilized value of $400 per unit. As did Cam Gar's expert, Verona's expert also considered 5% of the EGI appropriate for management fees. Additionally, he stabilized expenses for landscape and snow removal services at $350 per unit, and $75 per unit for professional fees and inspections costs.
The expert included a list of the annual overall expenses for 5 apartment complexes in Essex County.
Verona's expert noted that this category of expenses was not reported by Cam Gar. However, in Cam Gar's expert's report, he listed $110 per unit for "professional fees, Inspections & Misc." but provided for $90 per unit (using the 2006 information).
Verona's expert differed significantly from Cam Gar's expert in his allowance for R&M. While both experts stabilized this expense since it is subject to annual fluctuations (depending upon prior history and property condition), and thus, cannot be compared to the R&M expenses of other comparable properties, Cam Gar's expert's allowance was almost twice that of Verona's expert allowance. Verona's expert justified a lower figure because in his opinion, a full-time staff being paid approximately 10% of effective gross income to ensure well-maintained conditions, should not result in incurring R&M of 10% (or more) of the EGI, and if it did, it was likely duplicative. He also opined these expenses are better stabilized on a percentage basis (as opposed to Cam Gar's expert's use of a per-unit basis). He therefore allowed 5% of the EGI for R&M.
Again, he differed significantly from Cam Gar's expert in his allowance for reserves, by providing 1% of the EGI for this expense category. He conceded that the amount was based upon his experience and that his report did not have any supporting data. He testified that capital repairs are not made every year given the average useful life for many of these items, and as such, it was unnecessary to reserve large percentages of effective gross income. He also noted that prudent apartment complex owners would not set aside significant amounts of income as reserves since this would then require infusion of more operating capital to expend on the day-to-day operating expenses, and thus, cost more to the owner.
In all, Verona's expert's provision for operating expenses (not counting real estate taxes) amounted to $5,055 per unit or about 39% of the gross income (or 40% of his EGI). He maintained that his estimates were well supported by the 2007 IREM reports which showed that the overall operating expenses (excluding real estate taxes and reserves) for garden-style apartments in northern New Jersey was about 27.5% of the gross income.
The court finds Cam Gar's use of the 2006 figures less credible. Since the Parkview principle requires considering a property's "current ongoing income" to be prima facie evidence of its fair rental value, supra, 62 N.J. at 34-35, it follows that the best evidence for a property's operating expenses is the most current ongoing expense information. Further, the expert's explanation that he did not have any particular reason for preferring 2006 expenses as opposed to the actual expenses for 2007 is not persuasive. His opinions in this regard were also undermined since he did not compare the Subject's actual expenses to other comparable complexes' expenses or to market statistics to determine if the former were commensurate with the market.
Further, his allowance for reserves is not supported but largely based on his professional opinion and experience. He did not physically measure any area since he deemed reliable the information he had received in this regard (although he could not recollect the source of the information). He agreed that his flooring area was essentially a doubling of the SF he had estimated for roofing, and that he used the same doubled area for his painting allowance of "exterior and halls." He did not have any data to verify the number of rooms in the Subject, but used 819 rooms to compute the additional allowance for painting for "apartments."
The court finds Verona's expert's methodology of calculating operating expenses more credible. The court therefore accepts Verona's expert's amounts with the exception of refuse removal of $100 per unit, as the actual expenses do not appear unreasonably high in comparison to his own market data sources. The court also finds Verona's expert's conclusion of 5% of the EGI for R&M more credible and will apply that figure. Equitable Life, supra, 16 N.J. Tax at 467. Although he did not provide hard data for his reserves allowance, the court finds his justification for the same credible, and will accept it. Since payroll taxes are normal operating expenses, and Verona did not provide any reason not to accept the same these items will also be considered. Similarly, payroll benefits (such as for example, employees' health insurance costs) and advertising are also normal operating expenses, and in the absence of any opposition to the same as unreasonable or duplicative, the court will allow these expenses.
Using the EGI above ($3,160,210) for computing the allowance for R&M, management fees and reserves, and allowing $174 per-unit for payroll taxes and benefits, $174 per-unit for refuse removal, and $38 per unit for advertising, the court finds the operating expenses for tax year 2008 to be $1,347,812. This provides a net operating income of $1,812,398.
Tax Year 2009
Cam Gar's expert listed the Subject's actual operating expenses for 2006, 2007 and 2008, and considered either the 2007 or 2008 expenses for purposes of tax year 2009. Thus, he used the costs incurred for calendar year 2007 for insurance, other utilities, and payroll, but used the expenses for calendar year 2008 for water and sewer expenses, payroll taxes and benefits, garbage disposal and professional fees expenses. Advertising expenses were not reported for 2008, but he applied a stabilized amount of $8,820. As for tax year 2008, he calculated management fees to be 5% of his EGI experience of the Subject, and provided the same amounts for R&M and reserves as he had for 2008. In all, Cam Gar's expert's provision for operating expenses (not counting real estate taxes) was 53.4% of his computed EGI.
Verona's expert also followed the same methodology as for tax year 2008, namely, providing for certain categories of expenses on an actual or stabilized per-unit basis, and using the data from the 2008 IREM and comparable garden-style apartments in Essex County to test his conclusions. He provided slight increases for certain expenses (water/sewer; utilities), but provided the same amounts for the other category of expenses as he had for tax year 2008.
Verona's expert thus concluded total expenses of $5,255 per unit, or 40% of gross income (or about 41% of his EGI), which he testified was comparable to his market data. The 2008 IREM showed total operating expenses without taxes or reserves to be 39.2% of gross income for Northern New Jersey garden-style apartments.
Since the experts agreed on the expense allowance for water/sewer, insurance, payroll, and management fees, the court accepts the same. For the reasons stated for tax year 2008, Cam Gar's provision for refuse removal, payroll taxes, payroll benefits and advertising will be included. Again, for the reasons stated for tax year 2008, the court will accept Verona's expert's calculation of stabilized professional fees/inspections, landscaping and grounds maintenance expenses, R&M, and reserves.
Using the EGI above ($3,185,353) for computing the allowance for R&M, management fees and reserves, the court finds the operating expenses for tax year 2009 to be $1,393,418. This provides a net operating income of $1,791,935.
Tax Year 2010
For tax year 2010, Cam Gar's expert applied the same category of expenses he had for the prior two tax years, accepted some of the amounts of expenses reported on Cam Gar's 2009 year-end operating statement but stabilized the R&M expense, reserves, and management fees.For R&M, he stabilized the amount at 15.86% of EGI, or $504,000. As for earlier years, and for the same reasons, he used 5% of the EGI for management fees, and $297,250 for reserves. In all, Cam Gar's expert's provision for operating expenses (not counting real estate taxes) was 57.3% of his computed EGI.
For calendar year 2009, the Subject reported repairs/maintenance expenses of $662,573 and management fees were $398,963 so his conclusions are below the Subject's reported amounts.
Verona's expert also accepted many of the expenses reported on the 2009 year-end operating statement and stabilized some, and maintained the same categories of expenses as for the prior two tax years, except for an addition for "miscellaneous/supplies." As for earlier tax years, and for the same reasons, he disagreed with Cam Gar's expert on the provisions for R&M and reserves. Additionally, he computed the reserves on a per-unit basis ($200 per-unit) as opposed to the percentage basis he had used for the prior two tax years.
He noted that the 2009 IREM showed total operating expenses (without taxes or reserves) to be 27.4% of gross rental income for Northern New Jersey garden-style apartments, while his estimates provided a ratio of 37.7% of the Subject's PGI (or $5,202 per-unit), and 40.1% of his EGI. The IREM data along with the rentals of the comparable apartments provided a guide with which he either accepted the Subject's expenses as reasonable or stabilized the same if they were outside the market data range.
The experts agreed, and the court finds the actual expenses for water and sewer, insurance, salaries, payroll taxes, payroll benefits, and their allowance of 5% of EGI for management fees to be reasonable. The court also finds credible Cam Gar's expert's allowance of the actual advertising costs, which was reasonable and was not attacked on grounds of credibility or duplication. The court accepts Verona's expert's expense estimates for the remaining items, because they are stabilized and supported by the IREM data and comparable property expenses. For the reasons explained above, Verona's expert's allowance of 5% for EGI for R&M is more credible. However, his allowance of $200 per-unit for reserves is on a slightly lower end when compared to his market data (National Apartment Market-Investor Survey Responses from PriceWaterhouse Coopers for the fourth quarter 2009) which listed the range of reserves from $175 to $750. Therefore, the court will use $300 which also accounts for the Subject's considerable age.
The court thus finds the operating expenses for tax year 2010 as $1,404,202. This provides a net operating income of $1,902,616.
Tax Year 2011
Cam Gar's expert followed the same pattern as he did for tax year 2010. He accepted the Subject's reported expenses, provided a stabilized figure of $504,000 or 14.9% of the EGI for R&M, 5% of the EGI for management fees, and $297,250 for reserves. In all, Cam Gar's expert's provision for operating expenses (excluding real estate taxes) was 48.6% of his computed EGI.
For calendar year 2010, the Subject reported R&M expenses of $508,974 and management fees of $382,339.
Verona's expert also followed the same pattern he had for 2010, except that he reduced his allowance by $25 per-unit for supplies. He noted that the 2010 IREM showed total operating expenses (without taxes or reserves) to be 27.4% of gross rental income for northern New Jersey garden-style apartments (or $5,150 per-unit), while his estimates provided a ratio of 36.7% of the Subject's PGI (or $5,130 per-unit), and 39% of his EGI.
For the reasons explained above for tax year 2010, the court accepts as credible Verona's expert's computations with the following exceptions. The court will use $300 per-unit as reserves. Verona's expert's market data (National Apartment Market-Investor Survey Responses from PriceWaterhouse Coopers for the fourth quarter 2010) shows reserves ranging from $250 to $750, and RealtyRates.Com shows the "average reserve requirements" for nationally surveyed apartments (for the third quarter 2010) at about $350 per-unit. The court also finds Verona's expert's reduction of $25 for supplies without basis considering the IREM data indicates that the costs for "supplies" category had increased from 2009 to 2010. Further, the Subject's trash collection expense at $188 per-unit is reasonable because it recurred in roughly the same amount in each month of 2010, and because it is not unreasonably high. Therefore, the court will accept Cam Gar's use of this amount, as it will for the advertising expenses of $73 per-unit. The experts agreed that the Subject's actual expenses for the remaining category of expenses were reasonable, and therefore the court will use those numbers.
As so modified, the court finds the operating expenses for tax year 2011 as $1,356,670. This provides a net operating income of $1,998,980.
In sum, the net operating incomes for each tax year, 2008 through 2011, are $1,812,298; $1,791,935; $1,934,116; and $2,011,328 respectively.
D. Capitalization Rates
Both experts used the mortgage-equity Band of Investment method to develop their capitalization rates. Both experts were largely in agreement with respect to the loan to value ratios, mortgage terms, and the interest rates to be applied. The major source of disagreement was the anticipated equity return rates.
For tax year 2008, Cam Gar's expert estimated the availability of a 70% mortgage for 25 years with a 6.5% rate of interest and an 8% equity return rate. His overall capitalization rate ("OAR") was 8.1%. For tax year 2009, he changed only the loan-to-value ratio (75%), and arrived at the same OAR of 8.1%. For tax year 2010, he estimated a 70% mortgage for 20 years with a 6.25% interest rate and an 11% equity return rate, for an OAR of 9.40%. For tax year 2011, his loan-to-value ratio, loan term and equity return rate were unchanged, but he used a lower lending (interest) rate of 5.75% and computed the OAR at 9.20%.
Cam Gar's expert opined that the Subject was not of institutional or investment grade quality because it was built in 1968, and was not in a high demand area with low competition. He derived his equity return rates based on his professional experience, RealtyRates.com surveys, conversations with local lenders, and his familiarity with sales of other comparable properties, even though he did not identify any specific comparable sales. He also relied upon Realty Capital Analytics and the Korpacz Real Estate Investor Survey ("Korpacz"). He noted that in 2008, the apartment market in New Jersey was strong, therefore investors would demand lower rates of return, however, in the later years, the opposite was true.
Adding the effective tax rates (1.887% for 2008; 1.9507% for 2009; 2.42% for 2010 and 2.33% for 2011), his OARs as loaded were 9.987%, 10.05%, 11.82%, and 11.53% for each respective tax year.
Verona's expert assumed the availability of a 70% mortgage for 25 years with a 6.5% interest rate for tax years 2008 (similar to Cam Gar's expert). He used the same factors for tax year 2009. For tax year 2010, he used a 70% mortgage for 25 years with a 6% interest rate, and the same for tax year 2011, but with the lower interest rate of 5%. He estimated a 7% equity return rate for tax years 2008 and 2009, and a 5% equity return rate for tax years 2010 and 2011 because, in his opinion, the Subject was an institutional-grade or investment-grade property based on its size (one of the largest apartments complexes in Verona), location, and quality. He relied upon his conversations with bankers in the area to develop his interest rates and loan-to-value ratios, in addition to relying upon publications such as the ACLI, Real Estate Research Corporation ("RERC") and Korpacz, and further upon his experience as an appraiser.
Verona's expert thus computed OARs of 7.8% for 2008 and 2009, 6.9% for tax year 2010, and 6.4% for tax year 2011. After adding in the effective tax rates (1.89%, 1.95%, 2.416%, 2.33%), he arrived at OARs as loaded of 9.69%, 9.75%, 9.32%, and 8.73% for each tax year, respectively. He noted that these rates were appropriate given the fact that the Subject is well-located with good quality income stream potential. He also noted that the rates were commensurate with the OARs reported by the ACLI, Korpacz and RERC.
The RERC data reflected regional capitalization rates for institutional grade (or first-tier investment properties, which it defined as "new or newer quality construction in prime to good locations") for apartments ranging from:
(i) 5% to 8% with an average of 6.5% for the fourth quarter 2007;The northern New Jersey section of the report indicated going-in capitalization rates ranging from:
(ii) 6% to 9.5% with an average of 7.4% for the fourth quarter 2008;
(iii) 6% to 9.5% with an average of 7.6% for the fourth quarter 2009; and
(iv) 5% to 11% with an average of 7.2% for the fourth quarter 2010.
(i) 6.2% to 6.5% for the fourth quarter 2007;However, for second-tier (defined as "aging, former first-tier properties, in good to average condition") apartment complexes, the RERC reported capitalization rates ranging from:
(ii) 6.9% to 7% for the fourth quarter of 2008 ;
(iii) 7.5% to 7.6% for the fourth quarter of 2009; and
(iv) 6.6% to 7.2% for the fourth quarter of 2010.
(i) 6% to 9% with an average of 7.4% for the fourth quarter of 2007;Korpacz (and its successor PriceWaterhouse Coopers) reported OARs for national apartments of institutional grade ranging from:
(ii) 6.5% to 12% with an average of 8.1% for the fourth quarter of 2008;
(iii) 6.3% to 10% with an average of 8.2% for the fourth quarter of 2009; and
(iv) 5.5% to 10% with an average of 7.7% for the fourth quarter of 2010.
(i) 3.5%-8%, averaging 5.75% for the fourth quarter 2007 (tax year 2008);Per Cam Gar's expert's report, Korpacz showed the OARs for multi-family non-institutional grade property as ranging from:
(ii) 3.5%-8.5%, averaging of 6.13% for the fourth quarter 2008 (tax year 2009);
(iii) 5.75%-11%, averaging 8.03% for the fourth quarter 2009 (tax year 2010) and
(iv) 4.25%-10% with an average of 6.51% for the fourth quarter 2010 (tax year 2011).
(i) 4.5% to 10% with an average of 6.69% (third quarter 2007);The ACLI data (attached to Verona's expert's reports) showed capitalization rates for apartments as follows:
(ii) 4.5% to 11% with an average of 6.86% (third quarter 2008);
(iii) 5.75% to 15% with an average of 9.7% (fourth quarter 2009); and
(iii) 4.5% to 14% with an average of 8.21% (fourth quarter 2010).
(i) 6% (7.6% for loans of $5 million-$15 million) for the fourth quarter 2007 (tax year 2008);
(ii) 7.5% (7.4% for loans of $5 million-$15 million) for the fourth quarter 2008 (tax year 2009)
(iii) 7.9% (8.8% loans of $5 million-$15 million) for the fourth quarter 2009 (tax year 2010); and
(v) 5.9% (6.8% for loans of $5 million-$15 million) for the fourth quarter 2010 (tax year 2011).
The expert's report for tax years 2008 and 2009 did not include a copy of the source data. However, for tax years 2010 and 2011, the expert's report included an excerpt of a survey from PriceWaterhouse Coopers titled "Institutional-Grade vs. Non-institutional-Grade Property rates" with information provided as to (i) the OARs for institutional grade apartments; and (ii) the "noninstitutional basis-point spread to institutional rates."
For the fourth quarter of 2009, the ACLI's information was incomplete in that it did not list the OARs for loans of $2 to $4 million.
Although national like RERC and Korpacz, the ACLI survey covers debt-equity transactions unlike the former, and thus, is more properly applicable as a check in the Band of Investment analysis. See Partridge Run Apartments v. Township of Parsippany-Troy Hills, 12 N.J. Tax 275, 278-289 (App. Div. 1992) (appropriate to rely upon ACLI survey even if it is not the "best market evidence" in terms of developing an OAR); Hull Junction, supra, 16 N.J. Tax at 102 (data in RERC and Korpacz comprise of a survey of un-leveraged or "all cash" transactions, and thus, provide the possibility of higher-than-normal equity return rates).
Last, per Cam Gar's expert's report for tax years 2008 and 2009, RealtyRates.Com showed OARs averaging 8.81% and 8.77% for apartments in 2007 and 2008, and for garden apartments, at 5.89% to 12.76% and an average of 8.42% for the third quarter of 2007; and 5.46% to 13.19% with an average of 8.51% for the third quarter of 2008. In the expert's report for tax years 2010 and 2011, he included information pertaining to the third quarter data of 2010 and 2011 (without explaining how the third quarter of 2011 information would apply to the assessment date of October 1, 2010 for tax year 2011). Per this data, for the third quarter of 2010, for garden-style apartments the OARs ranged from 4.81% to 12.83% with an average of 7.98%.
The expert's report for tax years 2008 and 2009 did not include a copy of the source data.
--------
The court finds more persuasive Verona's expert's development of the mortgage and equity components for tax years 2008 and 2009. The expert confirmed with bankers as to the mortgage terms and interest rates for the market. His substantiation for a slightly lower equity return rate is reasonable. The Subject is a sound investment property, with strong income potential and desirability given its location, and its relatively high occupancy. These facts make it a lesser investment risk, and therefore, does not warrant high rates of return. His rates are also supported by the market data.
For tax years 2010 and 2011, the court does not find persuasive Verona's expert's calculation of capitalization rates. While his market data reported a slow economy for the real estate market which was picking up in 2011, and that the apartment market was not suffering as much as single-family homes as evident from absorption rates, there was no evidence that the market improved between 2008 and 2009 to such a degree such that an investor would require a significantly lower rate of return. Indeed for tax years 2010 and 2011, Verona's expert's OARs were lower than the average OARs reported by his market data sources. Although he testified that the Subject should be deemed an institutional grade or first-tier property because in 2006 it received financing from Prudential, which primarily invests in institutional grade property, this fact is not conclusive in terms of justifying a lower equity return. Although the Subject is well-maintained and locationally desirable, it is nonetheless a considerably older property.
Cam Gar's OARs of 9.40% and 9.20% for 2010 and 2011 are also not usable because there was no credible evidence to indicate volatility or higher risk in the apartment complex market between 2008 and 2009 such that an investor would require significantly higher equity return rates. Although he opined that high equity rates are justified because the Subject is non-institutional grade, the data in RealtyRates.com (which he relied upon most heavily) showed the average rate for the fourth quarter 2010 was 9.4%, and this was based upon a survey (of the third quarter data) of nation-wide Class A and Class B properties. Further, that rate was also "exclusive of reserves" and the expert did not explain this term and whether it would have any impact on his derivation of equity rates While his testimony is reasonable that equity demands were higher because lending was tight, and for the expected equity rate to be lower than the return to the bank there had to be an expectation of significant growth in income, the data also showed that the apartment market in northern New Jersey did not suffer the market decline to the degree or extent single-family homes may have, and indeed was still an attractive real-estate investment option.
Therefore, the court will calculate OARs for 2010 and 2011 using Verona's expert's mortgage components, and will apply an equity dividend rate of 7.5%. Applying this finding, the final OARs for 2010 and 2011 are 7.66% and 7.16%. As compared to the experts'
conclusions, these rates are closer to the average rates reported by Korpacz, RERC, and ACLI for the fourth quarters of 2009 and 2010, and are therefore more reliable to indicate the value of the Subject. After adding the effective tax rates to the court's findings, the OARs as loaded that the court will apply are 9.687% (2008), 9.76% (2009), 10.08% (2010), and 9.49% (2011).
The foregoing analysis can be summarized as follows for each tax year: Tax Year 2008
+----------------------------------------------+ ¦Potential Gross Income ¦ ¦ +--------------------------------+-------------¦ ¦Rental Income ¦$ 3,286,944 ¦ +--------------------------------+-------------¦ ¦Laundry and Other Income ¦$ 22,176 ¦ +--------------------------------+-------------¦ ¦Total ¦$ 3,309,120 ¦ +--------------------------------+-------------¦ ¦Less: ¦ ¦ +--------------------------------+-------------¦ ¦Vacancy & Collection Loss (4.5%)¦$ (148,910) ¦ +--------------------------------+-------------¦ ¦Effective Gross Income ("EGI") ¦$ 3,160,210 ¦ +--------------------------------+-------------¦ ¦Less: ¦ ¦ +--------------------------------+-------------¦ ¦Operating Expenses ¦$ (1,347,812)¦ +--------------------------------+-------------¦ ¦Net Operating Income ¦$ 1,812,398 ¦ +--------------------------------+-------------¦ ¦Loaded OAR at 9.687% ¦ ¦ ¦ ¦ ¦ ¦Value (rounded) ¦$18,709,590 ¦ ¦ ¦ ¦ ¦Rounded to $18,709,600 ¦ ¦ +----------------------------------------------+
The assessed to true value ratio is 21.87% ($4,092,800/$18,709,600). This is within the common level range. Therefore the assessment is affirmed. Tax Year 2009
+---------------------------------------------+ ¦Potential Gross Income ¦ ¦ +--------------------------------+------------¦ ¦Rental Income ¦$ 3,313,272 ¦ +--------------------------------+------------¦ ¦Laundry and Other Income ¦$ 22,176 ¦ +--------------------------------+------------¦ ¦Total ¦$ 3,335,448 ¦ +--------------------------------+------------¦ ¦Less: ¦ ¦ +--------------------------------+------------¦ ¦Vacancy & Collection Loss (4.5%)¦$ (150,095) ¦ +--------------------------------+------------¦ ¦Effective Gross Income ("EGI") ¦$ 3,185,353 ¦ +--------------------------------+------------¦ ¦Less: ¦ ¦ +--------------------------------+------------¦ ¦Operating Expenses ¦$(1,393,418)¦ +--------------------------------+------------¦ ¦Net Operating Income ¦$ 1,791,935 ¦ +--------------------------------+------------¦ ¦Loaded OAR at 9.76% ¦ ¦ ¦ ¦ ¦ ¦Value (rounded) ¦$18,359,989 ¦ ¦ ¦ ¦ ¦Rounded to $18,360,000 ¦ ¦ +---------------------------------------------+
The assessed to true value ratio is 22.29% ($4,092,800/18,360,000). This is within the common level range, and below the county percentage level, and therefore the assessment is affirmed. Tax Year 2010
+-------------------------------------------+ ¦Potential Gross Income ¦ ¦ +------------------------------+------------¦ ¦Rental Income ¦$ 3,455,892 ¦ +------------------------------+------------¦ ¦Laundry and Other Income ¦$ 62,000 ¦ +------------------------------+------------¦ ¦Total ¦$ 3,517,892 ¦ +------------------------------+------------¦ ¦Less: ¦ ¦ +------------------------------+------------¦ ¦Vacancy & Collection Loss (6%)¦$ (211,074) ¦ +------------------------------+------------¦ ¦EGI ¦$ 3,306,818 ¦ +------------------------------+------------¦ ¦Less: ¦ ¦ +------------------------------+------------¦ ¦Operating Expenses ¦$(1,404,202)¦ +------------------------------+------------¦ ¦Net Operating Income ¦$ 1,902,616 ¦ +------------------------------+------------¦ ¦Loaded OAR at 10.08% ¦ ¦ ¦ ¦ ¦ ¦Value (rounded) ¦$18,875,159 ¦ ¦ ¦ ¦ ¦Rounded to 18,875,200 ¦ ¦ +-------------------------------------------+
Chapter 123 does not apply in a revaluation or reassessment year, N.J.S.A. 54:51A-6(d). Further, the court will not increase the assessment in the absence of a counterclaim by Verona. F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 431 (1985). Therefore the assessment is affirmed. Tax Year 2011
+-------------------------------------------+ ¦Potential Gross Income ¦ ¦ +------------------------------+------------¦ ¦Rental Income ¦$ 3,507,840 ¦ +------------------------------+------------¦ ¦Laundry and Other Income ¦$ 62,000 ¦ +------------------------------+------------¦ ¦Total ¦$ 3,569,840 ¦ +------------------------------+------------¦ ¦Less: ¦ ¦ +------------------------------+------------¦ ¦Vacancy & Collection Loss (6%)¦$ (214,190) ¦ +------------------------------+------------¦ ¦Effective Gross Income ("EGI")¦$ 3,355,650 ¦ +------------------------------+------------¦ ¦Less: ¦ ¦ +------------------------------+------------¦ ¦Operating Expenses ¦$(1,356,670)¦ +------------------------------+------------¦ ¦Net Operating Income ¦$1,998,980 ¦ +------------------------------+------------¦ ¦Loaded OAR at 9.49% ¦ ¦ ¦ ¦ ¦ ¦Value (rounded) ¦$21,064,067 ¦ ¦ ¦ ¦ ¦Rounded to 21,064,100 ¦ ¦ +-------------------------------------------+
The assessed to true value ratio is 87.67% ($18,468,400/21,064,100). This falls within the Chapter 123 limits. However, the court will not increase the assessment in the absence of a counterclaim by Verona. F.M.C. Stores Co., supra, 100 N.J. at 431. The assessment is affirmed.
CONCLUSION
The Clerk of the Tax Court shall enter judgments affirming the assessments for all tax years.
Very truly yours,
Mala Narayanan, J.T.C.