Opinion
No. 568838
April 26, 2005
MEMORANDUM OF DECISION
This is an appeal by plaintiff, the owner of real property in the City of New London known as Two Shaws Cove, challenging the valuation placed on such real property by the tax assessor of the City of New London on October 1, 2003. The appeal is taken pursuant to the provisions of C.G.S. § 12-117a et seq.
On the assessment date, October 1, 2003, the subject property consisted of a 2.5-acre parcel of land in the Shaws Cove Office Park. Located on such property was a two-story multi-tenant class A office building (some space used for laboratory purposes) built in 1988. The rentable area of this building was found to be 32,074 square feet with about 57,000 square feet of paved driveway and parking area.
The subject property was a conforming use within the LI-O, Light Industrial-Office Zoning District.
Petitioner acquired the property by conveyance from Coolidge-Cove Equities LTD on April 19, 1996. The purchase price was $721,623. The sale was between related parties and the purchase price does not represent an arms-length transaction.
The assessor of the City of New London valued the subject property as of the assessment date of October 1, 2003 at $3,416,900. Petitioner has alleged that this was not the true and actual value of the subject property and that value placed on the property by the assessor was grossly excessive, disproportionate and excessive. The petitioner appealed to the Board of Assessment Appeals of the City of New London claiming to be aggrieved by such valuation and offered to be sworn and answer all questions concerning the property. The Board elected not to grant such hearing and so notified the plaintiff.
Claiming to be aggrieved by the assessment and the action of the Board, plaintiff has instituted the present appeal.
"Section 12-117a, which allows taxpayers to appeal to the Superior Court, provide[s] a method by which an owner of property may directly call in question the valuation placed by assessors upon his property. In a § 12-117a appeal, the trial court performs a two-step function. The burden, in the first instance, is upon the plaintiff to show that he has, in fact, been aggrieved by the action of the board in that his property has been overassessed. In this regard, [m]ere overvaluation is sufficient to justify redress under [§ 12-117a], and the court is not limited to a review of whether an assessment has been unreasonable or discriminatory or has resulted in substantial overvaluation. Whether a property has been overvalued for tax assessment purposes is a question of fact for the trier. The trier arrives at his own conclusions as to the value of land by weighing the opinion of the appraisers, the claims of the parties in light of all the circumstances in evidence bearing on value, and his own general knowledge of the elements going to establish value including his own view of the property.
Only after the court determines that the taxpayer has met his burden of proving that the assessor's valuation was excessive and that the refusal of the board of tax review to alter the assessment was improper, however, may the court then proceed to the second step in a § 12-117a appeal and exercise its equitable power to grant such relief as to justice and equity appertains. If a taxpayer is found to be aggrieved by the decision of the board of tax review, the court tries the matter de novo and the ultimate question is the ascertainment of the true and actual value of the applicant's property. If the court finds that the property has been in fact overvalued, it has the power to, and should, correct the valuation." Konover v. West Hartford, 242 Conn. 727, 734-36 (1997) (Citations, internal quotation marks omitted).
The first step which the court must take in deciding this appeal, therefore, is to determine whether plaintiff has been aggrieved by the decision of the Board on the grounds that its property had been over assessed and the Board improperly refused to reduce the assessment. In making this determination, it is necessary for the court to arrive at a preliminary conclusion concerning the fair market value of plaintiff's property.
The highest and best use is commonly accepted by real estate appraisers as the starting point for the analysis of the true and actual value of property regardless of the method of valuation. Commissioner of Transportation v. Bakery Place, 83 Conn.App. 343, 350 (2004). The highest and best use of the subject property as it exists is the current use for office purposes. Both appraisers agreed to this conclusion.
There are three generally recognized methods of appraising the fair market value of real property; the cost approach, the income approach and the sales comparison approach. Both appraisers properly rejected the cost approach in this case. The court agrees that the cost approach would not be practical in determining the value of the subject property at this time. Both appraisers relied primarily on the income approach to determine value. The sales comparison approach was used to support the conclusions as to value found utilizing the income approach.
The use of the sales comparison approach suffered from the fact that it does not appear that there have been any sales of similar properties, that is office buildings within office parks, in the area in recent times. In using the sales comparison approach, both appraisers were forced to use the sales of dissimilar commercial properties in the New London area. Substantial adjustments then had to be made to compare values which coincidently supported the values arrived at by the income approach. In the case at bar, the sales comparison approach lacked credibility. To arrive at a proper valuation of the subject property, reliance must be on the more appropriate income approach. Both appraisers appear to have relied on this approach for their valuation of the subject property.
Considering all of the evidence, the following facts, basic to a determination of the value of the property using the capitalization of income approach, are found.
The rental income of $518,207 used by the plaintiff is appropriate. In view of the lease situation on the property and the type of tenants occupying the subject property, petitioner's vacancy and credit lease factor of 10% is not reasonable. Defendant has used a 4% factor which is more reasonable and will be accepted resulting in a reduction of rental income of $20,728. This results in an effective gross income of $497,479. To this figure must be added the reimbursements listed by plaintiff's appraiser resulting in a total of $577,823.
Plaintiff has listed $230,445 in expenses. Some of the listed expenses are not acceptable. Considering all of the factors involved, expenses are found to be $215,000. This results in a net operating income of $362,823.
Plaintiff has arrived at a capitalization rate of 13.25% and defendant's appraiser has used 11.23%. Considering all of the factors involved in the selection of capitalization rate, it is found that the appropriate rate to be applied in this case is 12.00%.
Applying this capitalization rate of 12.00% to the net operating income of $362,823, the value of the subject property is found to be $3,023,525.
Since the tax assessor has valued the property at $3,416,900, it must be found that the plaintiff has met its burden of proving that the assessor's evaluation was excessive and is thereby aggrieved by the decision of the board of assessment appeals.
Plaintiff, having met its initial burden of proving aggrievement, the true and actual value of the property must be found.
As previously noted, considering all of the evidence on the subject, the only practical method of arriving at the fair market value of the subject property is by using the income approach.
There was evidence that the property had been appraised, for bank purposes, in 2001 for $2,950,000. There was little evidence concerning this appraisal and the court cannot speculate about inflation or other market values except to note the economy in the area was improving during the period 2001 to the assessment date of 2003 and real estate values have increased. In any event, the bank appraisal figure is not out of line with the value resulting from the use of the income approach as determined by the court.
It is, therefore, found that the true and actual value of the subject property on October 1, 2003 was $3,024,000.
Accordingly, judgment may enter sustaining the appeal. The assessor of the City of New London shall correct the valuation of the subject property consistent with this decision for the grand list of October 1, 2003 and 2004 without cost to either party.
Joseph J. Purtill, JTR