Opinion
# 2018-045-512 Claim No. 124117
10-25-2018
J. NAZZARO PARTNERSHIP, L.P. v. THE STATE OF NEW YORK
Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. By: Saul R. Fenchel, Esq. Hon. Barbara D. Underwood, Attorney General By: Christopher M. Gatto, Assistant Attorney General
Synopsis
Case information
| UID: | 2018-045-512 |
| Claimant(s): | J. NAZZARO PARTNERSHIP, L.P. |
| Claimant short name: | NAZZARO |
| Footnote (claimant name) : | |
| Defendant(s): | THE STATE OF NEW YORK |
| Footnote (defendant name) : | |
| Third-party claimant(s): | |
| Third-party defendant(s): | |
| Claim number(s): | 124117 |
| Motion number(s): | |
| Cross-motion number(s): | |
| Judge: | Gina M. Lopez-Summa |
| Claimant's attorney: | Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. By: Saul R. Fenchel, Esq. |
| Defendant's attorney: | Hon. Barbara D. Underwood, Attorney General By: Christopher M. Gatto, Assistant Attorney General |
| Third-party defendant's attorney: | |
| Signature date: | October 25, 2018 |
| City: | Hauppauge |
| Comments: | |
| Official citation: | |
| Appellate results: | |
| See also (multicaptioned case) |
Decision
This is a timely filed claim for a permanent and temporary appropriation (taking) of property, as well as a temporary easement on the property, owned by claimant, J. Nazzaro Partnership, L.P., brought against defendant, the State of New York, pursuant to the Eminent Domain Procedure Law and § 30 of the Highway Law.
The Claim in this matter was filed with the Court on March 26, 2014. The appropriation maps and descriptions contained therein are adopted by the Court and incorporated herein by reference. The aforesaid maps and descriptions were filed in the Office of the County Clerk of Suffolk County. Pursuant to the requirements of Court of Claims Act § 12 (4) and EDPL § 510 (A), the Court has made the required viewing of the property which is the subject of this claim. The claim has not been assigned or submitted to any other Court or tribunal for audit or determination. Pursuant to CPLR 3025 (c), the Court deems that the pleadings are conformed to the proof presented at trial.
The parties agreed that claimant is the owner of the property and prior to the taking, the property was 65,296 square feet. After the taking, the remainder property was 63,070 square feet. The vesting date was February 21, 2014 and the property is identified on the 2012 Suffolk County Tax Map as District 800, Section 106, Block 3, Lot 52.003. The State's partial appropriation was made as follows: Fee Taking - Map 1261, Parcel 1310 (2200 sq ft) and Parcel 1309 (26 sq ft), Temporary Easement - Map 1262, Parcel 1312 (2,865 sq ft) and Parcel 1311 (296 sq ft).
The subject property is an irregularly shaped parcel located at 710 Nesconset Highway in the Township of Smithtown, County of Suffolk. Nesconset Highway is alternatively referred to as Smithtown Bypass as well as Route 347. The parcel is located on the northwest corner of Nesconset Highway at its intersection with Terry Road and has an access point on each roadway.
The subject property is split zoned Neighborhood Business District (NB) and Residence 10 District (R-10). The property is primarily zoned NB with a portion zoned R-10 for which certain variances and special exceptions were granted in order to permit parking in the R-10 zoned area.
Prior to the appropriation, the subject property contained 65,296 square feet and constituted one unified developed property with cross-easements for access and parking between the front portion, referred to as Unit A and the additional land referred to as Unit B.
For consistency the Court will refer to the 7-Eleven portion of the property as Unit A and the additional land portion of the property as Unit B.
The property was improved with a 3,000 square foot 7-Eleven on Unit A built in conformity to an approved site plan. Unit B had preliminary site approval in 2011 for a 4,500 square foot office/bank and ATM facility. On June 12, 2012 a Letter of Intent, was executed between claimant and TD Ameritrade for construction of a bank and financial office with a request from TD Bank to increase the square footage. A formal lease was executed on January 20, 2017. In anticipation of development of Unit B, 48 parking spaces which served both the 7-Eleven and the additional land had been constructed.
As a result of the taking, the property was reduced in size by 2,200 square feet along the west side of Terry Road along with 26 square feet at the southwest corner along Route 347 for a total of 2,226 square feet or 3.4% of the total land area. The property taken included a landscaped buffer zone which contained grass and a large tree along Terry Road. Site improvements included concrete curbing, asphalt paving and an island of reinforced concrete.
Both parties agreed that the highest and best use for Unit A was a 3,000 square foot 7-Eleven store. Both parties also agreed that the highest and best use for Unit B was for commercial development however they differed on the size of the development.
Elinor Brunswick, a real estate appraiser, prepared claimant's appraisal and testified on behalf of claimant at trial. Ms. Brunswick considered what was physically possible, legally permissible, financially feasible and maximally productive for the property in determining its highest and best use. She noted that at the time of vesting Unit A was improved with a 3,000 square foot 7-Eleven while Unit B was still in development. In making her evaluation she determined the highest and best use of the subject property is to be developed with a free standing retail building as currently exists on Unit A and development with an 8,700 square feet two-story commercial building on Unit B. After the taking, she found the same highest and best use but with a reduction to 6,600 square feet of building space on Unit B.
In analyzing the vacant land value of Unit A before the taking, Ms. Brunswick utilized the sales comparison approach which reflects an estimate of value as indicated by the actual sales market. She selected three different sales of vacant property which were commercially zoned and purchased to be developed and/or leased with 7-Eleven retail stores. She used the sales of two properties and for the third property she converted the lease to a land value as the actual cost of construction was available. After making certain adjustments to the sales which she determined were appropriate she found a per square foot range between $86 and $93. She then determined that before the taking, the per square foot value was $90. She then multiplied $90 by 26,686 (the total square footage allocated to Unit A) and found a before taking vacant land value of $2,400,000.
Unless otherwise noted, all calculations are rounded off.
October 25, 2018
Hauppauge, New York
Gina M. Lopez-Summa
Judge of the Court of Claims
Ms. Brunswick then used the income capitalization approach to determine the market value of the property as improved before the taking. Ms. Brunswick explained that she used only the income capitalization approach to value the property as improved because the improvement was already constructed and occupied by a triple net leased single tenant. She set forth that these highly rated properties are purchased for their income flow. She explained that the sales comparison approach has little if any significance since these properties are single tenanted triple net leased and the sales of these properties are a direct product of the lease, quality of the tenant and the income flow. Ms. Brunswick began her analysis by determining that the subject property had a rent of $55 per square foot which she adjusted to $60.50 to take into consideration the effect of the pending condemnation. She selected three comparable leases of 7-Eleven stores and made adjustments she determined were appropriate. She selected $60.50 as the fair market rent of the property and multiplied $60.50 by 3,000 square feet and determined that $181,000 was the economic rent for the 7-Eleven.
Applying a 2% vacancy rate and $5,600 in expenses, Ms. Brunswick determined a net income of $172,000 and a capitalization rate of 4.75%. Ms. Brunswick utilized a combination of triple net single tenant marketplace capitalization rates and market derived capitalization rate from three sales of properties with triple net leases and determined that 4.75% was the appropriate capitalization rate. She explained that 7-Eleven is the largest store chain in the triple net marketplace, one of the top franchise companies and has the lowest average capitalization rate on the market due to its strength as a company. She utilized Korpacz and Realty Rates and the average range was 7.03% to 8.78%. She also utilized the Cushman and Wakefield US Capital markets report which indicated Class A properties were trading in the 5.25% to 6.25% range with a number of markets in the 4.5% to 5.5% range. Her market derived capitalization rates ranged from 4% to 4.6%.
Ms. Brunswick applied a rate of 4.75% to the annual net income which resulted in an overall valuation of the subject property of $3,600,000 which she opined was the fair market value of the property as improved before the taking.
Ms. Brunswick next valued Unit B before the taking, which was approximately 38,610 square feet and was to be developed with a bank/office building. She did not value this land as vacant but used ground lease information that was comparable to the highest and best use of the property to ascertain the value. She explained that due to the excellent location of the property and the types of uses, she found rentals of land developed with triple net A-rated tenants and converted the figures into land value in order to arrive at a value of the additional land.
Ms. Brunswick selected two ground leases for property improved by the tenant with a TD bank and a lease of a McDonald's. She made adjustments which she deemed to be appropriate and found a before taking per square foot value of $80. She then multiplied $80 by 38,610 (the total square footage allocated to the additional land) and found a before taking value for Unit B of $3,088,000.
She then added the Unit A land value of $2,400,000 to the Unit B land value of $3,100,000 and found a total vacant land value of $5,500,000. She divided that by the total square footage of 65,296 and found a land value of $84 per square foot for the entire unified site.
Ms. Brunswick also determined that the final market value of the property as partially improved prior to the taking was $6,700,000. She reached this figure by adding $3,600,000, the improved value of Unit A to $3,100,000, the value of the additional land.
After the taking, Ms. Brunswick determined that the highest and best use of the property remained as commercial development. The subject property was reduced in size to 63,070 by the taking. The majority of the taking, 2,200 square feet runs along Terry Road and primarily lies within Unit B. As such, Ms. Brunswick found that the size of Unit A remained unchanged and that the land allocated to Unit B was reduced in size by the entire 2,226 square foot taking to 36,384 square feet. She found that the taking reduced the potential building size by 2,100 square feet or 24% of the potential development. There was also a loss of landscaping and buffer area along Route 347 and along Terry Road which diminished the aesthetics of the entire site.
Ms. Brunswick used the same sales in analyzing the after taking value of the land for Unit A. After making an adjustment for marketability to take into consideration the loss of potential development for the entire site of which the 7-Eleven was a part and the loss of landscaping, she found an after taking land value of $85 per square foot for Unit A. She then multiplied $85 by 26,686 and found a vacant land value of $2,270,000.
Ms. Brunswick performed the same analysis using the income capitalization approach to value Unit A as improved after the taking. She set forth that although the taking did not impact the achievable rental of Unit A, the potential investor would find the loss of potential rental income available in the overall site a risk factor which she reflected in the capitalization rate. Also reflected in the capitalization rate is the loss of aesthetics. Ms. Brunswick adjusted the capitalization rate to 5% and arrived at an after taking valuation of Unit A of $3,400,000.
Ms. Brunswick then performed an analysis to value Unit B after the taking. She used the same leases and made an additional adjustment for marketability to take into consideration the 24% loss of potential development and the diminished aesthetics. She again valued the land by utilizing ground land leases developed with banks and triple A-rated tenants and converted the figures to a land value. She made a 20% adjustment for marketability and selected $65 per square foot as the rent. Multiplying $65 by 36,384 she found an after taking land value for Unit B of $ 2,365,000.
She then added the Unit A land value of $2,270,000 to the Unit B land value of $2,365,000 and found a total land value after the taking of $4,600,000. She divided that by the total square footage of 63,070 and found an after taking land value of $73 per square foot.
Ms. Brunswick determined that the final market value of the property as partially improved, after the taking was $5,800,000. She calculated this figure by adding the after taking value of Unit A of $3,400,000 to the after taking value of Unit B of $2,400,000.
Ms. Brunswick also calculated that the loss of site improvements to the subject property were $7,600.
Richard Marchitelli, a real estate appraiser, prepared defendant's appraisal and testified on behalf of defendant at trial. He noted that his appraisal relies in part on the engineering report prepared for this case by defendant's engineer. Mr. Marchitelli considered what was physically possible, legally permissible, financially feasible and maximally productive for the property in determining its highest and best use. He determined that highest and best use of the subject property, as if vacant was with a free standing retail building as currently improved as well as development with an additional 5,700 square feet of retail space. He opined that after the taking the highest and best use of the subject property is with a free standing retail building as currently improved as well as development with an additional 5,200 square feet of retail space. He referred to the current improvement as Unit A and the additional development as Unit B in his appraisal as well as his testimony.
In analyzing the site value of the subject property, Mr. Marchitelli divided the parcel into 2 economic units. He ascribed 26,992 square feet to Unit A, improved with a 3,000 square foot 7-Eleven and he ascribed 38,304 square feet of vacant land to Unit B.
In analyzing the value of the subject property prior to the taking, Mr. Marchitelli first analyzed Unit A using the sales comparison approach as improved. He selected three different sales of 7-Eleven stores in valuing that portion of the subject property. After making certain adjustments to the sales which he deemed appropriate, he found a before taking per square foot value of $405. He then multiplied $405 by 3,000 square feet and found a before taking value of Unit A of $1,215,000.
Mr. Marchitelli also utilized the income capitalization approach to determine the market value of Unit A before the taking. He selected 5 comparable rentals, including the subject rental and one other 7-Eleven store. After making certain adjustments to the rentals which he determined were appropriate he found $55 per square foot to be the appropriate rental. He determined a net income of $143,668 and a capitalization rate of 7.25% to reach a valuation of $2,000,000. Mr. Marchitelli determined the capitalization rate through the band-of-investment method. He determined that the mortgage position was 70% of the investment at a 7% rate of return and weighted at 4.91%. The equity position was the remaining 30% of the investment. He utilized medium grade corporate Baa bonds which were yielding 5.28% and added a premium of 250 basis points to reflect risk to reach 7.8% weighted at 2.34% to reach a capitalization rate of 7.25%.
After reconciling the sales comparison and income approaches, Mr. Marchitelli concluded that the sales comparison approach indicated a value far below that indicated by the income capitalization approach which he attributed to older leases with contract rents that are significantly below market. As such, he placed less weight on the sales comparison approach. Mr. Marchitelli reached an estimated market value of Unit A as improved before the taking of $1,700,000.
Mr. Marchitelli did not perform a vacant land valuation for Unit A.
In analyzing Unit B before the taking, Mr. Marchitelli utilized the vacant land valuation approach. He selected 4 different sales of vacant commercial land in Suffolk County in valuing this portion of the subject property. After making certain adjustments to the sales which he determined appropriate he found a before taking per square foot value of $24. He then multiplied $24 by 38,304 (the size he allocated to Unit B) and found a before taking value of $919,296.
Mr. Marchitelli reached an estimated market value of the subject property as partially improved before the taking of $2,600,000. He reached this amount by adding the estimated market value of Unit A as improved of $1,700,000 to the estimated market value of Unit B as vacant of $919,296.
Mr. Marchitelli set forth that the fee taking resulted in a loss of 2,226 square feet. He testified that Unit A lost 26 square feet thereby reducing it to 29,966 square feet and that Unit B lost 2,190 square feet thereby reducing it to 36,114. He opined that the effect of the taking was to reduce the size of the potential building that could be constructed on Unit B from 5,700 square feet to 5,200 square feet as well as a loss of 5 parking spaces. He concluded that the taking by the State did not diminish the appeal of the property, change its utility or affect the highest and best use of the property.
Mr. Marchitelli used the same sales and rentals in his after taking analysis when analyzing Unit A after the taking. He made the same adjustments as he made in the before taking scenario and found that after the taking, the market value of Unit A remained the same at $1,700,000.
In analyzing Unit B after the taking, Mr. Marchitelli used the same vacant land sales and made the same adjustments. He again valued Unit B as vacant without regard to the highest and best use of Unit B. He determined that no adjustments were necessary as a result of the taking. He found an after taking vacant land value of Unit B of $24 per square foot for a total of $866,736. Mr. Marchitelli made no valuation analysis with respect to the reduction of size to the potential building development and/or the highest and best use of the property.
Mr. Marchitelli determined that the final market value of the subject property, after the taking, was $2,566,736 by adding $1,700,000, the value of Unit A, to $866,736, the value of Unit B.
Mr. Marchitelli found no severance damages as a result of the taking.
Engineer Reports
William Lahti, a licensed engineer submitted a report and testified on behalf of claimant. In his report, he stated that the subject property was approximately 65,296 square feet. He allocated 26,686 square feet to Unit A and allocated 38,610 square feet to Unit B.
Mr. Lahti developed a site plan illustrating the maximum development potential of 11,700 square feet of area for the subject property which included the 3,000 square foot 7-Eleven and a proposed 8,700 square foot building. He opined that prior to the taking Unit B could have been developed with a 2 story building consisting of a 4,500 square foot bank with drive thru and ATM lanes and 4,200 square feet of offices on the second floor.
Mr. Lahti opined that there is a reasonable probability of approval because the proposed uses are permitted as of right in the NB zoning district; no parking variance is needed; the sanitary waste flow complies with Suffolk County Department of Health Services septic density discharge limits; the 3,000 square foot store was already approved; the location, size and use of the 4,500 square foot first floor bank was already approved and the location size and quantity of curb cuts and the location and orientation of parking stalls along the Terry Road frontage were already approved, constructed and in use. Additionally, the proposed NYSDOT taking line at the time the subject property was being developed cut much deeper into the subject property causing the developer to shift the proposed parking stalls further west into the site than actually necessary based upon the actual taking. The Town of Smithtown previously granted a variance to allow parking within 50 feet of the zoning district line and had approved the 24 foot wide traffic lane parallel to the setback.
Mr. Lahti testified that the taking of 2,226 square feet caused a loss of 3.4% of the property. After the taking, the size of the property was reduced to 63,070 square feet and the development potential on the additional land was reduced from 8,700 square feet to 6,600 square feet. This 2,100 square foot reduction in building potential and loss of 14 parking stalls represents a loss of 24% of the building area that could have been constructed. He explained that the loss of square footage is attributable to the loss of 14 parking stalls along the Terry Road frontage as the Town requires one parking space for each 150 square feet of gross building area.
He opined that the reduction on potential building size diminished the utility of the property.
Mr. Lahti also set forth that the loss of existing site improvements included 70 linear feet of curbing, 412 square feet of asphalt pavement, 89 square feet of reinforced concrete, a portion of a pavement marking directional arrow and approximately 2,036 square feet of irrigated landscaped area.
Daniel Falasco, a licensed engineer submitted a report and testified on behalf of defendant. In his report, he stated that the subject property was approximately 65,296 square feet. However he allocated 26,992 square feet to Unit A and allocated 38,304 square feet to Unit B based upon an economic unit line determined by Mr. Marchitelli. Mr. Falasco noted that according to the approved site plan, dated November 17, 2011, there were two proposed buildings. One building was a 3,000 square foot convenience store which was improved with a 7-Eleven at the time of vesting and the second proposed building was a 4,500 square foot bank building which had not been constructed at the time of vesting. He explained that the approved site plan included variances and indicated that there was a proposed taking line encompassing 7,919 square feet. Although the square footage of the actual taking was smaller, the parking stalls along Terry Road had already been constructed and were set back from the proposed taking line in order to comply with the Town of Smithtown requirements.
Mr. Falasco set forth in his report that Mr. Marchitelli had determined the highest and best use of the property was for retail use and that his report will determine the effect of the taking on the potential to develop Unit B with a retail building. He also noted that retail use requires 1 parking space per 100 square feet whereas a bank/office requires 1 parking space per 150 square feet.
Mr. Falasco opined that prior to the taking the additional land could be developed with a retail building consisting of 5,700 square feet. The site would require 87 parking spaces. He set forth in his report that such a building meets all zoning requirements as well as the requirements of the Sanitary Code.
Mr. Falasco concluded that as a result of the taking Unit A lost 36 square feet and is now 26,956 square feet and Unit B lost 2,190 square feet and is now 36,114 square feet. Mr. Falasco opined that as a result of the taking Unit B could be developed with a 5,200 square foot retail building, a loss of 500 square feet. After the taking there was also a loss of 5 parking spaces. The taking resulted in a 5.7% loss in building area and a 3.4% loss of property.
With respect to the temporary easement, Mr. Falasco set forth that the 20 stalls indicated along Terry Road which had not yet been constructed, if constructed would not be accessible during the duration of the temporary easement. In addition, ingress and egress to the site would be subject to closure during construction activities.
The appropriate measure of damages for a partial taking of real property is the difference between the value of the whole property before the taking and the value of the remainder after the taking (Chester Indus. Park Assoc., L.P. v State of New York, 103 AD3d 827 [2d Dept 2013]). The measure of damages must reflect the fair market value of the property in its highest and best use on the date of the taking, whether or not the property is being put to such use at that time (Gyrodyne Co. of Am., Inc. v State of New York, 89 AD3d 988 [2d Dept 2011]). It is not essential to demonstrate that either the property had been used at its projected highest and best use or that there had been a plan for such use, however it is necessary to demonstrate that there is a reasonable probability that its asserted use could or would have been made within the reasonably near future and a use which is no more than a speculative or hypothetical arrangement in the mind of a party may not be accepted as the basis for an award (Matter of City of New York [Broadway Cary Corp.], 34 NY2d 535, 536 (1974), Matter of 730 Equity Corp. v New York State Urban Dev. Corp.,142 AD3d 1087 [2d Dept 2016]). Consequential or severance damages may also occur if there is a diminution in value of the remaining property as a result of the taking (Murphy v State of New York, 14 AD3d 127 [2d Dept 2004]). "In determining an award to an owner of condemned property, the findings must either be within the range of expert testimony or be supported by other evidence and adequately explained by the court" (Madowitz v State of New York, 288 AD2d 442, 443 [2d Dept 2001]).
In analyzing the vacant land value, Ms. Brunswick used the sales approach to determine the value of Unit A and the income approach to determine the value of Unit B. In analyzing Unit B, Ms. Brunswick did not use vacant land sales to analyze the value of the vacant additional land, but instead determined the value from a market rent she converted to a land value. Claimant argues that this method of valuation is appropriate because the vacant land valuation was not based solely on capitalizing the actual lease rental into value. The valuation was based on comparable leases from which a market rent was derived and directly capitalized into value. Claimant further argues that Ms. Brunswick did not rely solely on the executory leases of Bank of America and Ameritrade. Comparable leases were used to arrive at a market rent for capitalization, not the income flow from the subject leases themselves. Lastly, claimant argues that Ms. Brunswick's land value was further supported by two arm's length land sales which confirmed the reasonableness of her conclusion.
Mr. Marchitelli used comparable vacant land sales for Unit B and applied that value to the entire unified property to value the subject property. Defendant argues that valuation of property based upon a non-existent stream of income is inappropriate as a matter of law.
It is well settled that it is impermissible to fix the market value of land solely on the basis of capitalization of income expected to be realized from buildings and other extensive improvements not yet financed, on which no work had even begun on the day of taking (Matter of City of New York [Atl. Improvement Corp.], 28 NY2d 465, 470 [1971], Arlen of Nanuet v State of New York, 26 NY2d 346 [1970]). However, it is not a bright line rule. The Arlen Court explained that although, executory leases and agreements relating to vacant land may be given some weight as enhancing the value of the vacant parcels, it would be an error to expand the weight of such evidence by treating the leases as if they represent an income flow already in being. On remand, the Arlen Court instructed the lower court that the value of the unimproved land should be determined by reference to the sales price and (emphasis added) ground rentals paid for neighboring or competitive lands. The Arlen Court explained that capitalization of a ground rental may be properly used as one indicia of value of vacant land, since such ground rent reflects the opinion of experienced businessman as to the value of the vacant land for its highest and best use.
In addition, when capitalization of projected income is not the sole basis for valuation but is only one of the factors used in determining the market value of property it has been held to be proper measure of valuation (Matter of City of New York, 39 AD2d 573 [2d Dept 1972] affd 34 NY2d 800 [1974]).
While true that appellate courts have held that it is improper to value property based upon capitalization of a non-existent stream of income from projected future improvements when the direct sales comparison method is available (Matter of Pickerell v Town of Huntington, 272 AD2d 331 [2d Dept 2000]; Briarcliff Assoc. v Town of Cortlandt, 272 AD2d 488 [2d Dept 2000]), more recently, it has been recognized that the Court of Appeals' holding in Arlen permits the trial court to consider the effect of expected profits from planned development on the land's value but the court may not award damages based upon projected profits minus projected expenses (Matter of Metropolitan Transp. Auth. [Washed Aggregate Resources, Inc.], 102 AD3d 787 [2d Dept 2013]).
The evidence established that the property owner received site plan approval to improve the property with a 3,000 square foot convenience store and a 4,500 square foot bank building. The evidence also established that the site plan was developed with an understanding that the State would be appropriating over 7,900 square feet of the property. As of the day of vesting, the 3,000 square foot 7-Eleven had been constructed and the State appropriated a smaller amount of property. On June 12, 2012 a Letter of Intent, was executed with TD Ameritrade for construction of a bank and financial office and a formal lease was executed on January 20, 2017. In anticipation of development of the additional land, 48 parking spaces which served both Unit A (the 7-Eleven) and Unit B had been constructed. Additionally, in March 2015, the 2011 site plan was approved with revisions to reflect the specific features of the Bank of America ATM facility and the TD Ameritrade office. The evidence also established that there was available comparable sales data which could be used to value the vacant land which makes the sole use of the income approach improper (Briarcliff Assoc. v Town of Cortlandt, 272 AD2d 488 [2d Dept 2000]).
The parties agreed that the highest and best use of Unit B was to commercially develop the land. Mr. Falasco projected that Unit B could be developed with a 5,700 square foot retail space prior to the taking and 5,200 square feet after the taking. He based his projected retail use upon instructions from Mr. Marchitelli to apply retail use. Claimant argues that Mr. Falasco, by applying only one concept, was no longer acting as an expert and that his opinion should have minimal credibility because an appraiser has no qualifications to determine the maximally productive building potential. In addition, Mr. Marchitelli failed to take into consideration Unit B's approval to be developed as a bank/office when instructing Mr. Falasco to apply retail use. Bank/office and retail use, although both commercial uses, have different parking requirements which impact the size of the building that can be developed.
There was a dispute between the experts as to whether or not severance damages were appropriate in this matter. Severance damages may occur when the development potential of the remainder land has been reduced because of the taking (Broadway Assoc. v State of New York,18 AD3d 687 [2d Dept 2005]; Madowitz v State of New York, 288 AD2d 442 [2d Dept 2001]). Defendant's expert set forth that there were no severance damages as a result of the taking to either Unit A or Unit B. Claimant argues that the loss of 2,100 square feet in potential building area results in severance damages to both Unit A and Unit B.
In regard to Unit A, claimant determined that the taking resulted in $200,000 in severance damages based upon loss of marketability of the site as a whole and loss of landscaping which diminished the aesthetics of the entire site. Defendant determined that the taking resulted in no severance damages to Unit A.
With respect to the value of Unit B, Mr. Marchitelli determined that prior to the taking, the market value of the land as if vacant was $24 per square foot. Mr. Marchitelli also set forth that the highest and best use of the property was for it to be developed commercially. After the taking, Mr. Marchitelli opined that the market value of the land remained the same even though there would be a loss of 500 square feet and 5 parking spaces or 5.7% in potential building area as a result of the taking. Defendant concedes that there is a reduction in building potential for Unit B due to the taking, however Mr. Marchitelli failed to value Unit B at its highest and best use. The measure of damages must reflect the fair market value of the property in its highest and best use on the date of the taking, whether or not the property is being put to such use at that time (Gyrodyne Co. of Am., Inc. v State of New York, 89 AD3d 988 [2d Dept 2011]). Thus, the Court was provided only with claimant's valuation of Unit B at its highest and best use.
Problematically, claimant only valued Unit B using the income capitalization approach. After a careful review of the appraisal reports and trial testimony, the court finds that defendant's appraisal is flawed in that no analysis of Unit B in its highest and best use was presented to the court and no analysis of Unit A as vacant was presented to the court. Similarly, claimant's appraisal is deficient in only using the income capitalization approach in its highest and best use analysis. A condemnation proceeding is not a private litigation and there is a constitutional mandate upon the court to give fair and just compensation for any property taken. Just compensation necessitates 'just' to the claimant and 'just' to the people who are required to pay for it. It is well settled that property must be appraised at its highest and best use and paid for accordingly and when the appraisals are deficient, the case needs to be remitted for a trial so the court may derive an appropriate value of the property (Yaphank Dev. Co. v County of Suffolk, 203 AD2d 280 [2d Dept 1994]). "Where, as here, the court is unable to accurately measure the damages, it may reopen the trial to obtain further and more appropriate evidence on the issue" (Williams v State of New York, 90 AD2d 882, 884 [3d Dept 1982]; see also Chester Indus. Park Assoc., LLP v State of New York, 65 AD3d 513 [2d Dept 2009]; Matter of County of Suffolk v Kalimnios, 275 AD2d 455 [2d Dept 2000]).
Thus, having rejected the valuations reached by both parties' appraisers as discussed above, the record is insufficient to permit the Court to render a determination as to the value of the subject property. Accordingly, the trial is reopened for the purpose of allowing the parties to submit further evidence to assist in the determination of an appropriate valuation of the property. To that end, the parties are directed to contact the Court for the purpose of establishing a schedule for the exchange of supplemental appraisal reports and to schedule a date for the continuance of the trial of this matter.