Opinion
4013/06
12-01-2014
In the Matter of the City of New York Relative to Acquiring Title in Fee Simple absolute in certain real Property, where not heretofore acquired, for v. New Creek Bluebelt, Phase 3 Decision In the area generally bounded by Zoe Street, Dongan Hills Avenue, Hylan Boulevard and Stobe Avenue, in the Borough of Staten Island, City and State of New York. BAYCREST MANOR INC., (Fee Claimants for Damage Parcels 9 and 10) [Block 3544 Lots 25, and 43] Claimants, THE CITY OF NEW YORK Condemnor. BAYCREST MANOR INC., (Fee Claimants for Damage Parcels 9 and 10) [Block 3544 Lots 25, and 43] Claimants, v. THE CITY OF NEW YORK Condemnor.
City Attorney Zachary W. Carter Corporation Counsel of the City of New York 100 Church Street New York, New York 10007-2601 (212) 356-2668 Claimants Attorney Goldstein Rikon & Rikon and Houghton, LLP 381 Park Avenue, Suite 901 New York, New York 10016 (212) 422-4000
City Attorney
Zachary W. Carter
Corporation Counsel of the City of New York
100 Church Street
New York, New York 10007-2601
(212) 356-2668
Claimants Attorney
Goldstein Rikon & Rikon and Houghton, LLP
381 Park Avenue, Suite 901
New York, New York 10016
(212) 422-4000
Wayne P. Saitta, J.
At issue in this condemnation proceeding is the just compensation to be awarded to claimant BAYCREST MANOR INC., for the taking of the subject property, located on Staten Island (Block 3544 Lots 25, and 43). The Condemnor, THE CITY OF NEW YORK, took title to the property on November 3, 2006 (the vesting date). The court viewed the property on October 3, 2013, and a non-jury trial was held on October 7-9, 2013.
The City acquired the subject property for use as part of the CITY's New Creek Bluebelt Phase 3 project. The property consists of two irregularly shaped lots located in the Dongan Hills Section of Staten Island totaling 7,087 square feet. Lot 25 (Damage Parcel 9) fronts on Zoe Street and is 3,313 square feet in size. Lot 43 (Damage Parcel 10) is a contiguous lot, located to the rear of lot 24 and is 3,774 square feet in size. Lot 43 fronts on Cletus Street, a mapped but unbuilt street. Both lots were owned by Claimant at the time of vesting and are treated as a single lot for purposes of valuing the property.
Most of the area of both lots are designated wetlands and the remainder of the lots are wetlands adjacent uplands. The subject property was regulated as wetlands on the vesting date.
Both parties agree that because of the wetlands regulations, the owners of the property would not be able to obtain a permit to develop the lots. They also both agree that the highest and best use of the lot, as regulated, is vacant.
The first issue which the Court must determine is whether the restrictions on the lots imposed by the State's Wetlands regulations constituted a regulatory taking.
A property restricted by wetlands regulations is valued as restricted unless the Claimant can demonstrate that there is a reasonable probability that the wetlands regulations would be held to be a regulatory taking. If so, Claimant is entitled to an increment above the regulated value, representing an additional amount a reasonable buyer would pay for the probability of a successful judicial determination that the regulations were confiscatory. Chase Manhattan Bank v State of New York, 103 AD2d 211, 479 NYS2d 983 (2nd Dept. 1984); Berwick v State of New York, 107 AD2d 79, 486 NYS2d 260, (2nd Dept. 1985); Matter of City of New York, Staten Island Bluebelt Phase 2 (Fink) Index 4012/04 (Su. Ct. Kings 2007).
It is the Claimant's burden to establish that there is a reasonable probability that the regulations would be found to constitute a taking. de St. Aubin v Flacke, 68 NY2d 66 (1986); Adrian v Town of Yorktown, 83 AD3d 746, 920 NYS2d 411, (2nd Dept. 2011).
To show a reasonable probability that a constitutional challenge to the wetland regulations would succeed, a claimant must demonstrate that the regulations render their property unsuitable for any economic or private use, and destroy all but a bare residue of its value. Spears v Bearle 48 NY2d 254 (1979), de St. Aubin v Flacke, 68 NY2d 66 (1986); Chase Manhattan Bank v State of New York, 103 AD2d 211, 479 NYS 983 (2nd Dept. 1984).
In the present case, the wetlands regulations preclude any development of the property or any use other than leaving it vacant. The question remains however, whether this has destroyed all but a bare residue of the value of the property.
While the fact that the regulations may prohibit any development or economic use of a property may most frequently mean that the regulations have destroyed all or all but a residue of the property's economic value, such is not always the case.
The value of a property as a speculative investment is properly considered in valuing a property in a condemnation proceeding. Florida Rock Industries Inc., v US, 18 F3d 1560, (Ct of App, Fed Cir, 1994). There is a history on Staten Island of sales of wetlands properties which cannot be developed, either on the expectation that the restrictions may eventually be waived or modified, or on the expectation that the buyer may be able sell the property at a profit. Matter of City of New York (Grantwood Retention Basin), 33 Misc 3d 586, 929 NYS2d 478 (Su. Richmond Co. 2011)
In this case, both sides have presented comparable sales of Staten Island wetland properties that were similarly restricted so as to prohibit any development. The CITY's appraiser valued the subject lots, as restricted, at $8 a square foot or $57,000 in total. Claimant's appraiser valued the subject lots, as restricted, at $12 a square foot or $85,000 in total.
However, the fact that the property has more than nominal value as a speculative investment does not mean that the regulations do not constitute a regulatory taking. The question remains whether the speculative value of the property, as regulated, is more than a bare residue of the property's value as unregulated.
A regulation constitutes a taking per se, only in the extraordinary circumstance where no productive or economically beneficial use of land is permitted. Lucas v South Car. Coastal Council, 505 U.S. at 1014, 112 S.Ct. 2886 (1992) ; Tahoe—Sierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302, 122 S.Ct. 1465, (2002).
However, even if the regulations do not eliminate all of the economic value of a property, they may constitute a taking under the doctrine set forth by the United States Supreme Court in Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 98 S.Ct. 2646 (1978).
This analysis is an "essentially ad hoc, factual inquiry," in which the court considers: (1) "[t]he economic impact of the regulation on the claimant," (2) "the extent to which the regulation has interfered with distinct investment-backed expectations," and (3) "the character of the governmental action." Id at, 124.
The second factor in the Penn Central analysis, is whether the property owner had investment backed expectations that were blocked by the regulations. In this case, Joseph Barocas, Secretary of Claimant testified that Claimant purchased the subject property in the early 1970's before the wetland regulations were enacted. Barocas testified that he was a developer and builder of apartments and homes, and that in 1962 he purchased a larger parcel of land that bordered on the subject lots. Claimant subsequently purchased the lots that are the subject of this proceeding, to join with the parcel it owned on the block, in order to produce a more rectangular shaped property, as part of plans it had to develop a 250 condominium project called Seaver Village.
Barocas testified that Claimant took no action to develop the property until the 1970's when it filed plans to develop the site. He testified that the application was denied because New York State had issued a moratorium on wetland development. Claimant filed a Petition for a Moratorium permit for the Alteration of Tidal Wetland" on or about May 30 1975. Barocas testified that the petition was denied and Claimant was never able to get a permit to develop the proposed condominiums. Barocas also testified that the Claimant lost the larger parcel (but not the subject properties) in a foreclosure action prior to the vesting date.
Barocas' testimony, together with his petition for a moratorium permit, establish that he had reasonable investment backed expectations to develop the property which were prevented by the wetland regulations.
The third factor discussed in Penn Central is the character of the governmental action. The inquiry into the character of the regulation looks to whether it amounts to a physical invasion, or instead, merely affects property interests. Lingle v Chevron USA Inc., 544 US 528, 125 S.Ct. 2074 (2005).
Also considered as part of the character of the regulation, is the concept of "reciprocity of advantage" that is, whether the regulation is part of a more general regulatory scheme that provides some benefit to the restricted property owner, such as in the case of a comprehensive zoning plan. While the benefits to the property owner do not have to equal the benefits gained by other property owners, where a regulation singles out a particular property with a disproportionate burden, there is no reciprocity of advantage, which is indicative of a taking. Penn Central at 438 US at 133-135.
The wetland regulations herein are not part of a comprehensive plan that affects all property owners. While the regulations do provide a general public benefit, their burden falls on a limited group of property owners: the owners of wetlands.
Further, the burden falls disproportionately on owners of properties such as Claimants' which are largely wetlands, as opposed to wetland adjacent properties. Significantly, in terms of evaluating the character of the regulations, the regulations as they affect the property in this case prohibit all development. They do not allow the Claimants any alternative uses that would provide an economic return.
The first factor in the Penn Central analysis, the economic impact of the regulations, is the most involved. In evaluating the economic impact of a regulation in a takings case, the court must compare the value that has been taken from the property with the value that remains in the property." Keystone Bituminous v DeBenedictis, 480 U.S. 470 at 497, 107 S.Ct. 1232 (1978).
However, the Supreme Court has consistently declined to set forth a mathematical formula or specific percentage of loss of value that, by itself, would constitute a taking under Penn Central. See Kaiser Aetna v. United States, 444 U.S. 164, 174 175, 100 S.Ct. 383, 389—390 (1979). "[T]here simply is no bright line dividing compensable from noncompensable exercises of the Government's power when a regulatory imposition causes a partial loss to the property owner. What is necessary is a classic exercise of judicial balancing of competing values." Florida Rock industries Inc., v US, 18 F3d 1560 at 1570 (1994).
The Appellate Division Second Department held in Chase Manhattan Bank v State of New York, 103 AD2d 211, 479 NYS2d 983 (2nd Dept. 1984), that where wetland regulations deprived the claimant of all financially rewarding uses of the property and also, reduced the property's value by 86%, there is a reasonable probability that the regulations could be successfully challenged as a regulatory taking.
The Second Department recently held that while an 82% diminution in value standing alone is generally within the range found to be insufficient to constitute a regulatory taking, when the regulations also prohibited any development on any part of the wetlands property, there was a reasonable probability of a taking. Matter of New Cr. Bluebelt, Phase 4, 2014 NY Slip Op 08029 (2nd Dept. 2014).
In Friedenburg v State of New York, 3 AD3d 86, 767 NYS2d 451 (2nd Dept. 2003), the Second Department held, that while a diminution of 95% of the value of a property would not qualify as a per se regulatory taking under Lucas, a 92.5% -95% loss of value, together with an inability to use the property for any economic or even recreational purposes, constituted a regulatory taking under a Penn Central analysis.
In Adrian v Town of Yorktown, 83 AD3d 746, 920 NYS2d 411, (2nd Dept. 2011), the Second Department found no regulatory taking where regulations reduced the value of a 15 acre parcel by 64%. In that case the claimant sold the parcel for $3,600,000 and contended that it was worth $10,000,000 as unregulated.
In Putnam County Nat. Bank v City of New York, 37 AD3d 575, 829 NYS2d 661 (2nd Dept. 2007), the Second Department found that watershed regulations which reduced the value of a parcel by 80% did not constitute a regulatory taking. In that case the plaintiff was denied a permit to develop a 36 lot subdivision because a sewer permit for a development that size could not be built under the watershed regulations. Subsequently, the plaintiff was given approval for an alternate plan to develop a 17 lot subdivision. After obtaining approval, the plaintiff sold the property for $1.4 million dollars which it claimed was 20% of what the property would have been worth had they been allowed to develop the 36 lot subdivision. The Court held that plaintiff realized a "reasonable return" upon its sale of the property and the economic impact of the regulations was insufficient to constitute a regulatory taking. Id at 577.
In the present case, the Claimant values the property at $1,336,016 as unregulated and $85,000 as regulated indicating a 93.6% diminution of value. The City values the land as worth $475,000 as regulated and $57,000 as regulated, indicating an 88% diminution of value.
Thus, even if one accepts the CITY's valuation, the wetlands regulations reduced the property's value by 88%, prohibited any economically productive use of the property, prevented the Claimant's reasonable expectations to develop the property, and posed a special burden on wetlands owners without a commensurate reciprocal advantage. This demonstrates that there is a reasonable probability that the wetlands regulations, as applied to the subject property, would be found to constitute a regulatory taking. Matter of New Cr. Bluebelt, Phase 4, 2014 NY Slip Op 08029 (2nd Dept. 2014) Chase Manhattan Bank v State of New York, 103 AD2d 211, 479 NYS2d 983 (2nd Dept. 1984).
The Court must next consider what is the highest and best use of the property as unrestricted by the wetland regulations.
In the present case, the Claimant and the CITY asserted widely divergent values for the subject property, as unregulated, based their appraiser's different conclusions as to the lots highest and best use of the lots as unregulated.
The CITY's appraiser, Robert Sterling, MAI, valued the lots as unregulated as having a highest and best use of a single family house located on the rear lot (lot 43) with a driveway through the front lot (lot 25) leading onto Zoe Street, based on a report by Henningson Durham & Richardson Architecture and Engineering PC ("HDR"). Sterling valued the property developed with a single family home, after deduction of extraordinary costs, at $475,000.
Sterling had originally valued the property with a highest and best use of a two single family homes with one home located and each lot. However, the CITY later conceded that the HDR plan for two houses would require zoning variances because the lots do not meet minimum lot size and minimum lot width requirements required for development. Magnus Sjoberg, of HDR testified at trial that it was possible but not likely that the Board of Standards and Appeals (BSA) would grant a variance of the minimum lot size requirements, to allow a single family house on each lot.
Further, the extraordinary costs involved in developing a house on lot 43, which would front the unbuilt Cletus Street, would exceed the unregulated value of that lot with a single family house on it. The City valued lot 25 assuming the construction of a house on each it at $367,000. This is less than Sterling valued of the lots assuming that one house was built on lot 43 and no house was built on lot 25. This is due to the fact that a larger house can be built on the lots combined than can be built on lot 25 alone.
Claimants' appraiser Brent Lally, valued the property, as unregulated, with a highest and best use as developed with a seven unit apartment building, based on plans developed by Rampulla and Associates Architects LLP. He found the value of the lots to be developed as an apartment building, after deductions of extraordinary costs, to be $1,336,016.
Claimant's valuation presents two serious problems. First, Claimant's adjuster, Lally, made a positive adjustment of 52% to all of his unregulated comparable sales to reflect the fact that the subject lots are zoned R5 while the comparable sales were all zoned R 3-1, R3A or R3X. An owner is allowed the build to a Floor Area Ratio (FAR) of 1.25 in an R5 zoning district, but only to an FAR of .6 in an R3-1, R3A, R3X district. Lally, was unclear as to how he arrived at the 52% figure, and in fact testified at trial that he should have taken an upward adjustment of 208%.
However, Lally valued those unregulated comparable sales on the basis of potential floor area yield, rather than lot size. His price per square foot was not the purchase price divided by the square footage of the lot but by the square footage of floor area that could be built on the lot. Thus, Lally had already adjusted for the greater floor area allowed in a R5 district by comparing the price per buildable square foot. His 52% adjustment for zoning amounts to a significant double dipping.
At trial, Lally contended that a square foot of floor area in an R5 district is worth significantly more than a square foot of floor area in an R3 district because of economies of scale. He explained that one did not have to build two streets, extra water hook ups, or extra sewer hook ups. However, none of the comparable sales required the building of two streets and Lally offered no evidence that the savings achieved in only having to install one water and sewer hook-up would result in an increase in value close to 52% much less 208%.
If one removes the 52% adjustment for zoning, Lally's adjusted value per buildable square foot becomes $106.
Additionally, the comparable unregulated sales used by Lally were all in R3 districts which permit only one and two family homes, even though his highest and best use was for an apartment building. The market for parcels to develop as one and two family homes is a different market from apartment buildings. The only evidence of comparable sales of an apartment building was presented by the CITY, in its rebuttal. That parcel, located approximately two miles from the subject property, sold for $65 per buildable square foot in 2004, far below the range of comparable parcels developable as one or two family homes.
The other significant flaw in Claimant's valuation is that the building proposed in the Rampulla plan, while legally permissible under the zoning, is not marketable.
The CITY's Appraiser Robert Sterling, contended that the building proposed by Claimant while legal and physically possible was not marketable. He stated in his rebuttal report "No developer will ever construct such a peculiar building, no buyer would ever purchase a unit in such a peculiar building and no tenant would ever rent a unit in such a peculiar building. I have no knowledge of any building recently built in the New York metropolitan area that resembles claimant's building for the subject property."
The Rampulla plan was a zoning study designed to show a building that would utilize the maximum amount of FAR allowed on the combined two lots. Philip Rampulla, an urban planner with Rampulla and Associates, testified that he did not consider what apartment layouts would be possible in the proposed building. Lally testified that the building was marketable even though he admitted that he had no idea about how the apartments would be laid out.
While it is generally not necessary to include detailed architectural drawings and interior layouts to establish a highest and best use, where a site presents unusual architectural problems or constraints imposed by a property's configuration, the appraisal must account for those difficulties. The burden remains on a party asserting a highest and best use different from the existing use to demonstrate that such a use is financially feasible and maximally productive. Heron Realty Corp. v New York State UDC 40 Misc 3d 1202(A) unreported (Su Kings 2013)
Rampulla's plan called for a four story, 8,305 square foot building with an unusual shape. To maintain the required side yards, given the irregular shape of the combined lots, the proposed building has what could be described as a modified lightning bolt or zig-zag shape. It is long and extremely narrow at the middle, being only six foot wide at its mid-point.
Rampulla's plan, while sufficient as a zoning study, is insufficient to demonstrate that the building is marketable given its unusual configuration. In this case, given the unusual shape of the building, it is necessary to show how the apartments would be laid out in order to demonstrate that such a building is marketable.
Claimant's appraiser's opinion that the apartment building was marketable lacked a factual basis, given the constraints imposed by the configuration of the building and the fact that he had no idea how the apartments would be laid out.
Rampulla testified that the building would have an elevator, and that there would need to be a minimum of two fire stairways to ensure that each apartment had two means of egress. Rampulla did not specify where the elevator or staircases would go.
However, it is difficult to see, given the narrowness of the building and the fact that there are two apartments on each floor, how one could meet the requirement of two means of egress with only two staircases. Since both apartments on a floor would need access to both staircases, one would have to provide access to the staircases through a public hallway open to both apartments, if there were only two staircases. The building is clearly not wide enough for a public hallway running between two staircases.
Further, Rampulla agreed that proposed building is an "unusual railway shaped building". The common understanding of the term railway when applied to a building or apartment means that within each apartment there would be no hallway and each room would open directly onto another. While such an arrangement may be legal and compelled by the narrowness of the building, a railroad apartment it is an antiquated apartment configuration.
Additionally, the Rampulla plan called for tandem parking, specifically six spaces laid out in three sets of two spaces with one space directly behind another in each set. Thus when all of the spaces are in use, three of the cars would be blocked in by the car behind it.
Lally speculated at trial that parking could be managed by a doorman. However, no evidence was introduced to show that a 7 unit condominium at that location would generate the income necessary to employ a doorman.
Lally also testified that the zoning resolution did not require that the spaces be reserved for the condominium owners who lived in the building, and that the spaces could be rented to outsiders. Sterling testified that a building at that location that had tandem parking or did not provide parking for the condominium owners would not be marketable, stating, "The tandem parking would never work; you can't rent or sell units with tandem parking".
While the tandem parking scheme proposed by Claimants might comply with the zoning resolution, Sterling is correct that it is not something a developer who was actually building condominiums at that location would seriously consider.
Overall, given the unusual shape, railroad configuration, narrowness of parts of the building together with the proposed tandem parking, the proposed condominium building is not marketable and does not represent the highest and best use of the property.
The Court must next consider whether the CITY's proposed development represents the highest and best of the property.
The City's revised proposal is to build a single house on the rear parcel, lot 43, with a driveway through lot 25 to Zoe Street. Although, a minimum lot width variance would be needed, the variance would be slight. The minimum lot width requirement in an R5 district is 40 feet. The mean lot width of lot 25, the lot on which the driveway would be constructed, is 36 feet, and the mean lot width for lot 43, the lot on which the house would be built, is 37 feet. It is very probable in this situation that a variance in lot width of 3 feet would have been granted by the BSA to allow the construction of a single one family home.
The proposed building would be 4,749 buildable square feet, which is less than the maximum floor area that would be allowed on the site, given the permissible FAR of 1.25 in an R5 district.
However, in addition to the FAR limits there are also yard requirements and height limitations which must be met. In a R5 district the front yard must be at least 10 feet, the rear yard 30 feet and the side yards must total 13 feet. Additionally the maximum height in a R5 district is 40 feet.
Thus, the proposed building represents the maximum floor area allowed for a single family detached home on lot 43, given the yard requirements and height limitation in the Zoning Resolution.
As discussed above, it is not probable that an owner would be able to get a variance from the BSA to build a house on each lot, but would probably get a variance to build one house. Given the configuration of the two lots, a larger building could be constructed on lot 43 than on lot 25. Also, given extraordinary costs involved in developing a house fronting on the unbuilt Cletus Street, it would be more cost effective to have the house accessed through Zoe Street by means of a driveway through lot 25.
The single family house on lot 43 included in HDR's revised proposal would be marketable and represents the highest and best use of the subject property, as unregulated by wetlands regulations.
The court must next determine the value of the subject lots, as unregulated, given the highest and best use of one single family house on lot 43.
The CITY's appraisal used four comparable sales to arrive at a value of $100 per buildable square feet. However, the average of the four comparable sales was $103 and the median was $104.
Also Sterling took a 3.5% downward adjustment taken for extraordinary costs. Sterling testified that he took this adjustment because he believed that an investor would discount the subject property to cover the possibility that a pile foundation would be needed. However, no evidence was introduced that piles would be necessary and HDR did not find it necessary to include a pile foundation in its schedule of extraordinary costs, so Sterling's downward adjustment for extraordinary costs is not supported by the evidence.
When one removes the negative downward adjustment for extraordinary costs, and uses the $103 average of Sterling's comparable sales, then the adjusted average price per buildable square foot becomes $106.60 or $107 rounded.
Sterling's average adjusted unregulated value, (minus the adjustment of extraordinary costs) of $107 is very close to the average adjusted value of the unregulated comparable sales used by Lally, once his 52% zoning adjustment is removed. As discussed above, without the 52% adjustment for the subject's R5 zoning, the average of Lally's comparable unregulated sales, was $106. Both values are for buildable square feet.
Applying an adjusted value of $106 per square foot to the 4,749 square feet of HDR's revised proposal the resultant value for the property as unregulated, before extraordinary costs, is $503,394.
HDR estimated the extraordinary costs, including soft costs and location adjustment at $17,807. The estimate includes $4,072 in direct costs for excavating and disposing of 407 cubic feet of hydric soil from the lot.
Sjoberg, of HDR testified that the soil is within wetlands and is hydric soil, which acts as a sponge loaded with water. He explained that there are two methods to deal with hydric soils. One is to surcharge it, that is put fill on top of the hydric soil, and the other is to excavate the hydric soil, replace it with dry soil and protect that soil from future water intrusion by providing drainage.
He stated that there was nothing wrong with either approach and that the difference between the two approaches was a question of time. He explained that it takes time for the surcharge or fill to settle, and that it could take years to settle. He testified that this would be a problem not so much for the footprint of the building which has a foundation, but for construction on the surface, such as a driveway which could crack as a result of settlement of the soil. He testified that in order to compare the subject wetlands property to non-wetlands property, one had to bring it to a condition that it was "high, dry and ready" at the time of the comparison.
Todd Ettlinger an engineer and surveyor hired by the Claimant, testified that there was no need to excavate the lot. He testified that the soil on the site is largely silty sand and that the normal construction process in Staten Island is to put fill on top of silty sands rather than to excavate them. He explained that if hydric soil was excavated, the soil that replaced it would become hydric again.
He also testified that when fill is placed on top of silty soil it compresses the silty soil and squeezes the water out of it, and that the fill also distributes the load, increasing the bearing capacity of the soil underneath.
The Court finds the testimony of Ettlinger to be more persuasive on the issue of whether or not it is necessary to excavate the hydric soil on the site. Ettlinger has had more firsthand knowledge of construction on wetlands in Staten Island and Sjoberg testified that placing fill either with or without excavation was appropriate. Thus the Court will disregard the extraordinary costs attributed to excavation and disposal of excavated soil, which amounted to approximately $5,000, when adjusted for location. This reduces Sjoberg's proposed extraordinary costs to $12,807.
Claimant also challenged Sjoberg on his cost estimate of $10 a cubic yard for fill. On cross examination Sjoberg was asked why he estimated as cost of $10 cubic yard for fill for the subject property while he estimated a cost of $4.91 per cubic yard in a previous case before the Court. Sjoberg said that he could not explain the difference without breaking down the various components that went into the figure, and that the figure included more than just the cost of the fill but also the cost of handling it. The vagueness in Sjoberg's testimony, as to how HDR's price per cubic square foot of fill was determined, is less troublesome given the fact that Ettlinger used the same unit price of $10 per cubic yard for fill.
When one deducts extraordinary costs of $12,807 from the adjusted unregulated value of $503,394 the result is $490, 587, which the Court finds to be the value of the subject property as unregulated.
The court must next consider what increment to add to the regulated value of the property to account for the probability that the wetlands restrictions would be found to be a regulatory taking.
In a condemnation proceeding a property must be valued based on the uses allowable on the date of vesting. Where there is a reasonable probability that a different higher and best use would be allowed by a rezoning, a variance, or a finding that wetlands regulations constitute a regulatory taking, the property cannot be valued as if the regulations had already been changed or stricken. They must be valued as restricted with an increment added to reflect to reasonable possibility of unrestricted development. Chase Manhattan Bank v State of New York, 103 AD2d 211, 479 NYS2d 983 (2nd Dept. 1984); Berwick v State of New York, 107 AD2d 79, 486 NYS2d 260, (2nd Dept. 1985).
In the case of the condemnation of a wetlands property, the increment should reflect the amount that a knowledgeable buyer would pay above the regulated value of the property in light of the reasonable probability that the wetlands regulations would be found to be a taking.
This analysis necessarily applies to properties that are entirely or almost entirely wetlands because the New York State Department of Environmental Conservation ("NYSDEC") will not issue permits to develop such properties. Where a property is mixed wetlands and adjacent uplands and has enough non-wetlands area that it is probable that NYSDEC would issue a permit for some development, a court must consider all the uses that NYSDEC would permit with the regulations in place. Spears v Berle, 48 NY2d 254, 422 NYS2d 636 (1979); Friedenburg v NYSDEC, 3 AD3d 86, 767 NYS2d 451 (2nd Dept. 2003).
Where NYSDEC would issue a permit to develop, it is unlikely that the wetlands regulations would be found to constitute a regulatory taking. Such a partial wetlands property would be valued as regulated rather than as unregulated. Thus, when discussing the increment to be added to the regulated value of a wetlands property, the Court is using the term wetlands as shorthand to refer only to properties that are entirely or almost entirely designated wetlands.
The basis of the rule that such a property is valued with an increment over its value as regulated, is the belief that the price investors would pay for a wetlands property would be based on its restricted value, plus an increment for the possibility the regulations could be successfully challenged. "Common sense dictates that a knowledgeable buyer would not have paid claimant the full unrestricted residential value of its parcel on the day of taking, when the wetland restrictions were still legally in effect. The cost in time and money of applying for a permit and challenging in court any denial as confiscatory would naturally be taken into account by ay purchaser even if there appeared to be an excellent chance of ultimate success." Chase Manhattan v State, 103 AD2d 211, 479 NYS2d 983 (2nd Dept. 1984) at 219. "[T]he law follows the realities of the marketplace, which are that a knowledgeable buyer would adjust his purchase price to offset the cost in time and money of applying for a permit and challenging its denial in court as confiscatory. Certainly, a knowledgeable buyer would not pay claimants the full unrestricted residential values of their properties on the day of taking, when the wetlands restrictions were still legally in effect. He would pay only the value of the property as so restricted, plus some increment representing its enhanced value at such future time when he is successful in nullifying the wetlands restrictions in court." Berwick v State (Berwick I), 107 AD2d 79, 485 NYS2 260, (2nd Dept. 1985) at 84.
Claimant in this case contends that an increment of 75% of the difference between the regulated and unregulated value of the property should be added to the regulated value of the property, relying on the Second Department decision in Berwick v State of New York ( Berwick II) , 159 AD2d 544, 552 NYS2d 409 (2nd Dept. 1990).
The City argues that the 75% increment set out in Berwick II is not based on the realities of the market and was not meant to be a general rule that a 75% increment should be applied to all wetland cases. The City also argues that adding an increment of 75% to the regulated value results in a final value that is 5 times higher than the highest price per square foot of any of the comparable Staten Island wetlands sales in evidence in this case.
Berwick II involved three appeals involving three different properties. The Appellate Division upheld an increment of 75% of the difference between the unrestricted value of three wetland properties and the value of the properties as restricted. The 75% increment was then added to the restricted value of the properties.
The Court dealt with differences between the three properties, not by varying the percent of the increment, but by making different adjustments to the comparable sales used for each property to account for what it termed development difficulties. This phrase appears to have referred to the extraordinary costs involved in developing on wetlands.
All three of the properties in Berwick II were almost entirely wetlands. The Berwick property was 92% wetlands, the Pascale property was 93% wetlands and the Dixon property was 97% wetlands. The Court adjusted the unregulated value of the Berwick property downward by 37%, the Pasacale property by 32.5% and the Dixon property by 34% and then added the increment of 75% to the regulated value of each property.
The City agues not only that the 75% increment applied in Berwick II does not reflect the realities of the market place, but also that investors of wetlands property on Staten Island in fact do not value such property on the expectation that they will be able to successfully challenge the wetlands regulations as an unconstitutional taking in court.
Sterling, the City's appraiser, testified at trial that he knew of no sales of wetlands where a buyer purchased designated wetlands and subsequently challenged the regulations as a regulatory taking. He stated in his rebuttal appraisal that because of the lack of such wetland sales, he is unable to develop from actual sales of wetland properties the price a developer would pay on the expectation of lifting the legal restrictions. Claimant's appraiser, Lally, also testified that he is not aware of anyone buying designated wetlands on the expectation that they can have the wetlands regulations declared a taking.
Sterling stated that due to the lack of sale of wetlands he could not develop the increment that an investor would pay for wetlands over its regulated value from actual sales of wetland properties. He testified that instead, he looked at sales of properties that were undersized, that is, lots that were too small or narrow to be able to build an economically viable house without a variance from the New York City Board of Standards and Appeals to allow development with reduced side or front yards. He compared such lots to similar lots that did not need a variance to develop a viable residence. From a sample of such sales of undersized properties, he calculated a ratio of the price an investor would pay for undersized lots, for which there was a reasonable probability that a variance would be granted, compared to the price of comparable lots that were developable without a variance.
Sterling believed that the ratio is a valid measure of the increment an investor would pay for wetland property because it reflects the difference between what a buyer would pay for a property on Staten Island which can be developed as of right and a property which can only be developed after and administrative or judicial process.
He stated that there are investors in New York City that purchase lots, at a discount, that do not meet the minimum dimensions required of the zoning resolution, and then apply for a variance to develop the property from the New York City Board of Standards and Appeals (BSA).
The undersized lots used as comparable sales by Sterling were developed as single family homes, which is the use he believes is the highest and best use of the subject property as unregulated.
Sterling stated that based on these comparable sales, he found that the amount buyers paid per developable square foot for undersized lots was 37% of the amount they would amount they paid for standard sized lots. He also adjusted this percentage downward to 32% to account for the additional time he believed it would take to challenge wetlands regulations in court as compared to obtaining a variance from the BSA.
Claimant argues that there is no basis for using the market for undersized lots as a substitute for the market for regulated wetlands as opposed to properties requiring rezoning, a special permit or a different type of variance.
One problem with Sterling's analysis is that, it in fact calculates a discount off the unregulated value rather than an increment added to the regulated value. Although he goes through the exercise of subtracting the regulated value of the property from 32% of the unregulated value and then adding the regulated value back in, this is not in conformity with the process articulated in Berwick I, Berwick II and Fink.
That process calls for the regulated value to be subtracted from unregulated value, then an increment to be calculated from the difference between the unregulated and regulated values, and that increment added to the regulated value. This is in line with the requirement that the property be valued as restricted with an increment added to reflect the possibility of a successful challenge to the regulations, rather than by taking a discount off the unregulated value to reflect the time, costs, and risks of such a challenge. Berwick v State of New York (Berwick II), 159 AD2d 544, 552 NYS2d 409 (2nd Dept. 1990); Matter of City of New York, Staten Island Bluebelt Phase 2 (Fink) Index 4012/2004 (Su. Ct. Kings 2007).
The Court in Fink, explicitly rejected a valuation, done in that case by Claimant's appraiser in this case, where he adjusted the unregulated value of the property downward rather than adding an increment to the regulated value. Matter of City of New York, Staten Island Bluebelt Phase 2 (Fink) at p. 14.
Here, Sterling instead calculates 32% of the unregulated value, and then subtracts the regulated value from 32% of the unregulated value, which he labels as the increment. He then adds that regulated value back to the 32% of the unregulated value, which he has labeled the increment.
The problem is that this method impermissibly bases the value of a wetlands property on the unregulated value of the property rather than the regulated value.
It results in the increment always being 32% of the unregulated value no matter what the size of the difference between the unregulated and regulated values are. Although, Sterling styles the 32% of the unregulated value as an increment to be added to the regulated value, it is a merely a discount off the unregulated value.
Sterling justified this methodology of using a ratio of the price paid for undersized property to the price of comparable lots developable as of right, as necessitated by the nature of the available empirical evidence. Sterling stated that there is no direct evidence of how investors calculate the costs, time and risk involved in seeking a variance, only the resultant prices invertors paid for such lots.
However, his method does not comport with the methodology required Berwick I, Berwick II and Fink.
A more fundamental argument raised by Claimant is that the City's appraiser cannot claim that the market for undersized properties reflects the reality of the market for regulated wetlands because Sterling believes that investors do not buy regulated wetlands in order to challenge the regulations as takings.
Claimant cites the Matter of New Creek Bluebelt Phase 4 (Paolella), 35 Misc 3d 1224(A), 953 NYS2d 549 (Su Kings 2012), in which this Court rejected an increment calculated by Sterling based on estimates of the legal fees, and cost of delay incurred in challenging wetlands restriction, because Sterling testified in that case that he did not believe an investor would in fact calculate an increment in such a manner.
Sterling's opinion is not only that an investor would not calculate with an increment by calculating the expense, time and risk involved in challenging wetlands regulations, but further that investors do not buy regulated wetlands property in Staten Island on the expectation that the wetlands restrictions could be challenged. Sterling argues that this is demonstrated by the fact that there are no actual sales of wetlands in Staten Island where an investor bought regulated wetlands and then challenged the regulations. Lally also testified that he was unaware of any buyer purchasing designated wetlands on Staten Island in order to challenge the regulations.
Sterling's opinion, contravenes the rule in Chase Manhattan and Berwick II, that an increment must be added to the regulated value of a wetlands property because investors do pay an increment for wetlands over the regulated value on account of the probability that the regulations can be successfully challenged. Chase Manhattan Bank v State of New York, 103 AD2d 211, 479 NYS2d 983 (2nd Dept. 1984); Berwick v State of New York, 107 AD2d 79, 486 NYS2d 260, (2nd Dept. 1985).
Therefore the Court rejects that part of Sterling's appraisal and testimony, which calculated an increment at 32% of the property's unregulated value.
Having rejected the Sterling valuation of the increment to be applied to property, the Court is bound to accept the Claimant=s evaluation of the increment or explain the basis for any departure. Gyrondyne Co. Of Am. Inc., v State, 89 AD3d 988, 933 NYS2d 375 (2nd Dept. 2011), see Matter of City of New York [Reiss], 55 NY2d 885, 886, 449 N.Y.S.2d 18 (1982); Matter of City of New York v. Estate of Levine, 196 AD2d 654, 601 N.Y.S.2d 620 (2nd Dept. 1993); Matter of City of New York, 94 AD2d 724, 462 N.Y.S.2d 260 (2nd Dept. 1983), affd. 61 NY2d 843, 473 N.Y.S.2d 963 (1984).
When, as in this case, the expert opinion of one of the parties is rejected as inadequate to support the Court's finding, then no range of testimony exists and consequently the award made by the trial court and every element thereof, if at variance with the remaining expert opinion, must be supported by other evidence and a sufficient explanation provided by the Court. (Matter of City of New York [A. & W. Realty Corp.], 1 NY2d 428 154 NYS2d 1 (1956); Evans v. State of New York, 31 AD2d 565, 294 NYS2d 349 (3d Dept. 1968); Fredenburgh v. State of New York, 26 AD2d 966, 274 NYS2d 708 (3rd Dept. 1966); Spyros v. State of NY, 25 AD2d 696, 268 NYS2d 283 (3rd Dept. 1966).
Claimant's appraiser, Lally, used 75% of the difference between the regulated and unregulated value of the subject property as the increment to be added to the regulated value of the property based on the decision in Berwick II.
Prior application of the 75% increment, by itself, is not a sufficient basis to apply it the present case. In the Matter of New Creek Bluebelt, Phase 4, 2014 NY Slip Op 08029 (2nd Dept. 2014).
While Lally testified that he was unaware of any cases where an investor purchased wetlands property on Staten Island and then challenged the wetland regulations, he also testified that he believed that the 75% figure takes into account the time taxes permits and legal challenges involved in challenging wetlands regulations.
The law is clear that where, as in the present case, there is a probability of a successful challenge to the wetland regulations, an increment must be added to the regulated value.
In light of, Lally's opinion that a 75% increment takes into account the time, costs, and risks of a challenge, and given the lack of evidence that a different increment to the regulated value of the subject property would better reflect the realities of the market, Claimant has demonstrated that a 75% increment is appropriate in this case.
As stated above, the value of the subject property as unregulated, after deducting the extraordinary costs, is $490,587. When the regulated value of $57,000 is deducted the difference is $433,587, and 75% of that difference is $325,190.25. Adding that increment of $325,190.25 to the regulated value of $57,000 results in a final valuation of $382,190.25.
Wherefore, the court finds that the value of the subject property for condemnation purposes on the date of vesting was $382,190.25. Settle judgment and order on notice.
Dated: Brooklyn, New York
December 1, 2014
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