NOT FOR PUBLICATION WITHOUT APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS
TAX COURT OF NEW JERSEY
MALA SUNDAR Richard J. Hughes Justice Complex PRESIDING JUDGE P.O. Box 975 Trenton, New Jersey 08625-0975 609 815-2922, Ext. 54630 Fax 609 376-3018
March 11, 2021 Paul Tannenbaum, Esq. Zipp & Tannenbaum, L.L.C. Attorneys for Plaintiff
Martin Allen, Esq. DiFrancesco Bateman et al., P.C. Attorneys for Defendant
Re: 4304 Route 9 South Realty Corp. v. Township of Freehold Block 4, Lot 39 Docket No. 006919-2018 Dear Counsel:
This letter constitutes the court’s decision following trial of the above-captioned matter
involving plaintiff and defendant’s challenge to the local property tax assessment of $5,081,500 1
for tax year 2018, imposed upon the above referenced property (Subject).
Each party’s real estate appraiser (offered and accepted by the court as an expert in real
estate appraisal) opined the Subject’s value, under the cost approach, as follows:
Plaintiff’s Appraiser Defendant’s Appraiser 2 $2,800,000 $5,630,000
There were two significant areas of disagreement between the plaintiff’s and the
Township’s appraiser. One was their conclusion of land value ($1,725,000 versus $3,880,000),
1 Allocated $1,875,000 to land and $3,206,500 to improvements. Plaintiff’s appraiser’s report indicates the assessment as $5,006,500 (allocated $1,800,000 to land and $3,206,500 to improvements) however this number does not appear on the Case Information Statement filed by both parties. 2 Defendant’s expert concluded a higher value under the sales comparison approach at $6,020,000, and in his reconciliation placed most emphasis on the valuation conclusion of $5,630,000 under the cost approach.
ADA Americans with Disabilities Act ENSURING AN OPEN DOOR TO
JUSTICE rm with each appraiser using different units of comparison (per square foot or PSF of building area
vs. acreage). This was mostly due to their comparable selection: plaintiff’s appraiser used land
sales which were all subsequently used to construct car dealerships. The appraiser for defendant
(Township) used sales some of which were developed for retail uses since he opined that land
zoned for commercial/retail use would attract competing buyers including car dealerships.
The second area of disagreement was in the depreciation rates used in arriving at the
Subject’s replacement cost for the improvement. Plaintiff’s appraiser used 45% for physical
depreciation of the building under the economic age/effective life computation, plus 10% for
functional obsolescence, and 65% physical depreciation for site improvements. The Township’s
appraiser used 20% for physical depreciation for building and site improvements using Marshall
& Swift (M&S) developed depreciation tables. There were certain minor differences as well,
such as adjustments to vacant land sale prices and plaintiff’s appraiser’s inclusion of
entrepreneurial profit in concluding vacant land value.
For the reasons stated below, the court finds that only two vacant land sales are credible
comparables (plaintiff’s appraiser’s Sale 1 and the Township’s appraiser’s Sale 2); none of the
adjustments made by the Township’s appraiser to the sale price of his comparable are
supportable; and plaintiff’s provision for entrepreneurial profit is not credible. With most weight
to the Township’s appraiser’s Sale 2 which occurred in Monmouth County where the Subject is
located, and close to the assessment date, the court finds land value as $950,000 per acre, which
when applied to the Subject’s area of 3 acres is $2,850,000. The court accepts plaintiff’s
appraiser’s depreciated improvement replacement cost new as his cost data is closer to the
assessment date but rejects his 10% provision for functional obsolescence. This equals
$1,293,523, which with land value provides a total value of $4,143,525 (rounded).
2 SUBJECT DESCRIPTION
Plaintiff owns the Subject which is a + 3-acre lot which is improved by a +18,241 square
foot new car dealership that was built in 1989. 3 It is located on the west side of Route 9 which,
per plaintiff’s appraiser’s report, “is dominated by various commercial uses including
automobile dealerships and various other commercial uses.”
The Subject lies within the CMX-3A (Corporate Multi-Use 3 Acres) zone. This zone
permits office and commercial development, amongst various other commercially used
properties, and includes “new car dealers” (who/which can nonetheless display used cars up to
30% of the inventory). 4 Further, it includes motor vehicle showrooms, offices, mechanical repair
and maintenance facilities.
The Subject has a sanitary sewer easement, about 30' wide, which per plaintiff’s appraiser
“effectively bisect[s] the subject site and travers[es] more than half of [its] frontage along Route
9.” Because of this, and its “relatively small, irregular shaped site,” plaintiff’s appraiser opined
that the Subject is not an ideal location for building a new car dealership. The site has freshwater
wetlands towards the rear and along southern property line. Because of this, the Township’s
appraiser deemed the “useable acreage . . . to be + 2.5 acres.”
The Subject is improved by a car dealership which is a one-and-part two-story building.
On the first floor is the showroom and reception area, individual offices, and restrooms totaling
+ 4,758 square feet (SF). The second floor has a mezzanine area which contains offices,
3 Plaintiff owns 16 car dealerships of different brands in the Tri-State, six of which are in New Jersey, one being the Subject. The other five are in Union and Hudson counties. 4 Per the zoning requirements, included in both appraisers’ reports, the minimum lot area is 3 acres; maximum building coverage is 20%; maximum lot coverage is 65%; maximum building height is 2 stories or 40 feet; and maximum floor-to-area (FAR) ratio is 20%. 3 breakrooms, and restrooms totaling + 1,638 SF. There is also a storage area on this floor totaling
+ 3,934 SF.
The service garage with eight bays equipped with lifts totaling + 7,911 SF is located on
the first floor of the building. Per the Township’s appraiser, ceiling height is + 22 feet. Other
site improvements include on-site parking for about 150 vehicles, yard lighting, eight pole
mounted floodlights in parking area, concrete curbing, landscaping (for + 30,000 SF). There is
one loading dock (with an aluminum and steel overhead door). HVAC is roof-top units.
Plaintiff leases an adjacent vacant lot on a month-to-month basis for additional storage
of its cars. Its appraiser agreed that it is not atypical to lease/use other property for storage of
additional inventory (cars), and it is more convenient when the other property is adjacent to the
dealership as opposed to being offsite.
The building was constructed in 1989. Per Plaintiff’s appraiser, renovations were done
to portions of the office and service area post-valuation date in 2018 (at a cost of $139,732.34),
and to the showroom in 2019 (at a cost of $112,020). Per the Township’s appraiser, the façade
and showroom were renovated in 2006. Plaintiff’s owner confirmed that the Subject did not
undergo any renovations prior to the valuation date of October 1, 2017. He noted that in 2006,
due to request from the car manufacturer, plaintiff had to construct a change to the fascia by
building an arch in the entrance to the car dealership’s building at a cost of about $100,000, but
no renovations or alterations were made to the showroom or service area.
Both appraisers deemed the improvements to be of average condition and quality. Only
Plaintiff’s appraiser opined that the Subject’s improvements were also functionally obsolete
since (a) they were typical of an older dealership lacking “modern features such as a new car
delivery area and car wash,” thus needed an “overall renovation/modernization program,” and
4 (b) due to the “inadequately undersized exterior parking area.” 5 He also opined the site
improvements as requiring repair or replacement, with paving showing signs of deferred
maintenance.
ANALYSIS
(A) PRESUMPTION OF CORRECTNESS
Assessments are presumptively correct. MSGW Real Estate Fund, LLC v. Borough of
Mountain Lakes, 18 N.J. Tax 364, 373 (Tax 1998). The presumption is “a construct that
expresses the view that in tax matters, it is to be presumed that governmental authority has been
exercised correctly and in accordance with law.” Pantasote Co. v. City of Passaic, 100 N.J. 408,
413 (1985) (citations omitted). “The presumption attaches to the quantum of the tax
assessment.” Ibid. The burden of overcoming the presumptive correctness is upon the party
challenging the assessment’s validity. Ibid.
The court first decides whether plaintiff overcame the presumption, and if so, proceed to
evaluate the evidence presented, whether defendant has asserted a counterclaim or not. MSGW,
18 N.J. Tax at 378. If there is a counterclaim, and the court has decided that plaintiff overcame
the presumption of correctness, then there is no need for the court to separately determine
“whether the defendant has overcome the presumption with respect to a counterclaim.” Ibid.
Plaintiff adduced testimonial evidence of the Township’s assessor to attempt to call into
question the assessment’s presumptive correctness by showing that the land allocation of the
2018 assessment for the Subject lacked credible basis. The Township argued that allocation of
the assessment was irrelevant. The court agrees with the Township. There was nothing in the
5 Plaintiff leases a portion of the vacant lot behind the Subject (Block 4, Lot 40) with a parking capacity for 100 vehicles, at $3,250 per month. Per tax map included in Township’s appraiser’s report, area of this lot is one acre. 5 assessor’s evidence to allow this court to conclude that the 2018 assessment was so arbitrary or
baseless, or imposed without use of any reasonable valuation methodology.
Plaintiff also provided testimony of a real estate appraiser who used only the cost
approach, a recognized valuation method. That there could be credibility issues as to plaintiff’s
appraiser’s conclusion of value under the cost approach does not equate to plaintiff’s failure to
overcome the initial presumption of correctness of the assessment. Plaintiff’s proffer of its
appraiser’s valuation methodology suffices as the required scintilla of cogent and credible
evidence which raises a debatable question as to the assessment’s correctness.
(B) VALUATION
(1) Highest and Best Use
Plaintiff’s appraiser opined the highest and best use (HBU) of the Subject as vacant to be
for the development of modern one-and-part 2-story automobile dealership. He opined that as
]vacant all of the four criteria would be met in that (1) the zoning allows various commercial
uses, thus, a car dealership would be legally permissible; (2) it would be physically possible to
build the car dealership on the Subject’s site given its existing physical characteristics (size,
shape, topography etc.); (3) it is financially feasible to develop the Subject site for uses consistent
with the existing zoning; and (4) the site’s maximal productivity was decided by “use which
would support the highest land value.” 6
As improved, he opined the HBU as its current use because (1) zoning is for various
commercial uses including car dealerships; (2) it is physically possible to build a car dealership,
the Subject having been constructed in 1989; (3) it is financially feasible since the Subject has
6 There was no analysis of which use “would support the highest land value.” 6 been successfully operating as a car dealership since 1989; (4) thus, the use of the Subject as an
automobile dealership was the maximally productive use of the site. 7
The Township’s appraiser opined the HBU as vacant to be for a commercial development
conforming to CMX-3A zone because it is legally permissible, physically possible, financially
feasible since the Subject neighborhood is developed with commercial uses, and maximally
productive for a zoning-permitted commercial use. As improved, he opined its HBU as its
present use as evidenced by the Subject’s existing improvements, and there being an active
market for auto dealerships as the Subject.
The court agrees with the appraisers’ conclusion that the Subject’s HBU as improved is
its present use since it checks all the four required boxes (criteria) under the HBU analysis
(legally permissible, physically possible, financially feasible, and maximally productive).
(2) Value Conclusions
Both appraisers used the cost approach. The Township’s expert tested the results under
the sales comparison approach but did not rely upon the higher value conclusion it provided
because the sales “had some unusual sale conditions and several were heavily renovated after
the sales.” Cross-examination also showed that he did not verify (or could not recollect
verifying) several sales nor knew the details of how the sale price was determined (i.e., whether
it included franchise, personal property, goodwill), and one sale was a foreclosure/distress sale.
7 This conclusion was despite his opinion when addressing the Subject’s physical characteristics that the Subject’s sanitary easement and its “relatively small, irregular shaped site,” did not render the site as an ideal location for building a new car dealership.
7 The court will therefore only examine the cost approach conclusions by both appraisers.
Under this approach, vacant land value is first developed, to which is added the depreciated cost
of improvements.
(i) Land Value
Land value is determined by “a straightforward sales comparison approach” namely, by
analyzing “sales of similar parcels of land” and making required adjustments “to provide a value
indication for the land being appraised.” Ford Motor Co. v. Twp. of Edison, 10 N.J. Tax 153,
176-77 (Tax 1988), aff’d, 127 N.J. 290. As noted above, plaintiff’s appraiser concluded a land
value of $1,725,000, while the Township’s appraiser’s value conclusion was $3,880,000.
Plaintiff’s appraiser viewed car dealerships as unique because the sites, location, layout,
building construction and other improvements are dictated by franchisors. Therefore, he felt that
the only credible comparables would be sales of vacant land which were improved by an
automobile dealership. Since such sales are infrequent, he opined, he performed a State-wide
search. The six sales were as follows:
Location Size Sale Date Sale Price Zone Actual/Planned Approvals FAR Other (Town/County) (Acres) Building SF Maple Shade, 5.22 05/13/13 $3,000,000 HC- Highway 27,693 SF Subject to 12.18% Existing motel Burlington County Commercial demolished for Acura Winslow, 20.63 01/17/14 $8,280,000 HC- Highway 44,398 SF Subject to 4.94% Carmax Auto Camden County Commercial Superstores built West Caldwell 6.46 11/13/14 $6,000,000 B-3 General 64,000 SF Subject to 22.74% Older Chevy Essex County Business Dist. dealership demolished for new state-of-the art Benz dealership Dover, 5.69 04/30/15 $1,800,000 RHB Rural 49,470 SF No 19.96% Post-sale, buyer Ocean County Hwy Business demolished existing structures to build 2- story car dealership South Brunswick, 10 02/16/17 $2,250,000 I-3 Industrial 15,600 SF Yes 3.58% Truck dealership built Middlesex County Robbinsville, 6.681 02/21/17 $2,200,000 HC- Highway 40,323 SF No 13.86% Vacant wooded lot for Mercer County Commercial building Jeep-Chrysler dealership.
After adjustments for lack of approvals (+30%) and difference in floor-to-area (FAR) at
5% or -10%, the value ranged from a high of $167.84 and a low of $49.13 for a mean of $104.08
8 PSF of building area. He concluded a value at $90 PSF of building area. This times the Subject’s
building size (18,241 SF) provided $1,641,690. To this he added 5% as entrepreneurial profit
for a total value of $1,725,000.
The Township’s appraiser opined that land usable for commercial purposes (he deemed
retail use the same as commercial use), which includes a variety of uses including car dealerships,
is an appropriate comparable. A car dealership, to him, is a retail business (sale of tangible
personal property: cars), therefore, land sales for retail uses, or which were post-purchased
improved for retail use, are appropriate comparables. He used the following sales, all located in
Monmouth County, as follows:
Location Size Sale Sale Price Zone Actual/ Approvals Zoning Other (Twp) (Acres) Date Planned Approvals Bldg SF Eatontown 4 06/15/17 $4,700,000 B2 Business 36,000 SF Yes site was previously approved for a 45,000 SF retail building; buyer, a supermarket chain, sought modification for a 36,000 SF building and reposition the building “envelope.” Hazlet 5.08 01/26/17 $5,800,000 BH Business 36,170 SF Subject to No Same buyer as Sale 1; when sold lot Hwy improved by a diner; sold subject to approvals, and with variances for a supermarket; appraiser added estimated demolition cost of $25,000 to sale price Freehold 2.15 09/02/16 $3,300,000 CMX-3 25,731 SF Existing When sold site had an older Chevy dealership; application for site plan approvals were post-sale for demolition and building a new Chevy dealership. Eatontown 4.09 07/13/15 $5,550,000 MB 40,246 SF Subject to No When sold was improved with a 22,610 SF Manufacture Audi car dealership which the buyer Business obtained approvals to expand
He adjusted the sale prices for approvals (twice, once as a condition of sale because the
sale was “Subject to Approvals” at -10%, and once when sold with no approvals in place at 35%)
and for time. The adjusted per-acre sale prices ranged from a high of $1,741,170 to a low of
$1,305,425 (with a mean of $1,547,082; and median of $1,570,867). He concluded a value of
$1,550,000 per acre which times the Subject’s 2.5-acre useable lot area was $3,875,000, which
he rounded to $3,880,000.
9 Findings
The issues are the credibility of the (1) chosen comparables; (2) unit of measurement;
and (3) adjustments to sale prices.
Credibility of Comparables
The court finds unpersuasive plaintiff’s appraiser’s theory that because the construction
and operations of a car dealership are unique, and so fully controlled by a franchisor that the only
credible comparables would be vacant land sold for the development of an automobile
dealership. 8 More persuasive is the Township’s expert’s opinion that any commercially usable
site which can compete with the Subject, thus for being improved by an auto dealership (provided
permissible under the zoning laws), can make a credible comparable. See e.g. Appraisal
Institute, The Appraisal of Real Estate 362-63 (14th ed. 2013) (“valuation of land draws directly
from the conclusions of [HBU] analysis,” thus, the HBU “of a competitive site on the date of
sale is the basis of the comparability of that site to the property being appraised”). Also, there is
no objective evidence to show that a car dealership is unique such that only certain type of land
can be used for its construction. Plaintiff’s appraiser’s premise that only land sales which were
subsequently improved as car dealerships are credible comparables unnecessarily narrows the
field of land sales data, unnecessarily forces the use of sales much before the assessment date,
and unnecessarily disregards otherwise useable sales in or within the Subject’s proximity.
8 If as plaintiff’s appraiser claims, car dealerships are built on sites selected solely by the franchisor, the question arises whether there is a willing buyer under no pressure to buy. The Township however did not challenge plaintiff’s appraiser’s sales as being non-arms-length due to the alleged control by the franchisor. Cf. The Appraisal of Real Estate at 360 (under the principle of substitution which applies to “raw land and developable sites . . . the greatest demand will be generated for the lowest-priced site with similar utility”). 10 Plaintiff’s appraiser’s opinion that only vacant land sales make for more credible
comparables is reasonable. However, this does not mean that comparables which were improved
when sold and the improvements were demolished for the new construction should be summarily
rejected. See id. at 364 (the land sales under the sales comparison approach can be used “to
value land that is actually vacant or land that is being considered as though vacant for appraisal
purposes”). Here for instance, some comparables used by both appraisers were improved when
sold. 9 However, their credibility as comparables depends on facts adduced in support thereof
(e.g., are sale terms indicative of non-arms-length dealings; is the price stated as a lumpsum and
includes more than realty).
The court will therefore examine the credibility of all proffered comparables. In this
connection, both appraisers agreed that proximity to main thoroughfares or highways, with high
visibility, and location amongst a “cluster” of other competing car dealerships, and/or shopping
centers, are desirable features for an automobile dealership since they all go to increased potential
for sales. The Subject enjoys all these features. Locationally, in terms of comparability with the
Subject, it is also reasonable to consider the household median income within a taxing district in
which the comparable is located versus that in the taxing districts in the Subject’s vicinity. 10
The court rejects plaintiff’s appraiser’s comparables 2 and 5. Sale 2 is a CarMax with a
lot size more than eight times that of the Subject’s lot. There are no other auto dealerships in the
9 When cross-examined why he did not use a 2018 land sale in Monmouth County (Eatontown) to a car dealership (Block 2401, Lot 54), plaintiff’s appraiser responded it was because it was improved when sold. The Township’s appraiser credibly rebutted this testimony by stating that he had used the sale as a comparable when appraising a neighboring property, thus personally knew that it was vacant land (10 acres), purchased for the development of an automobile dealership, 10 Plaintiff’s appraiser’s report noted the household median income for Monmouth County per the 2000 census information was $64,271. The Township’s appraiser’s report noted that the 2019 household median income for the Township was $113,237. 11 comparable’s vicinity. The appraiser agreed that CarMax purchases a car for a buyer from a
wholesale market; Carmax, an auto mall by itself, sells several different brands of autos. He
stated that the comparable’s zone likely allowed for building car dealerships, but the court was
provided with no evidence in this regard. Further, the lot size is considerable larger than the
Subject and the court cannot agree with plaintiff’s appraiser that such a disparity is irrelevant
because the Subject is a car dealership.
Sale 5 is located in an industrial zone where uses are industrial and warehouse. It has no
direct access to or from a highway. There was no evidence to show that car sales/dealerships are
a permitted use. The Township’s appraiser’s undisputed rebuttal testimony was that the land
was not a competitive use, and that the truck dealership was built to sell trucks to the warehouse
occupants. Plaintiff’s appraiser conceded that this was the least comparable vacant land sale.
The court rejects the Township’s comparable Sales 3 and 4. Per plaintiff’s appraiser’s
undisputed rebuttal testimony, Sale 3 included inventory and value for the franchise. Sale 4 was
one of improved property. Although the appraiser deemed it vacant, and estimated $20 per SF
for the existing improvements’ contribution to land value (thus deducted $450,000 from the sale
price), the evidence was that the buyer retained the improvements while seeking to expand on
them, and post-sale obtained approvals for a 17,636 SF expansion “mostly of the showroom.”
Additionally, he was not able to verify whether the sale included non-realty aspects.
This leaves plaintiff’s appraiser’s Sales 1, 3, 4, and 6 and the Township’s appraiser’s
Sales 1 and 2. Per plaintiff’s appraiser’s testimony, the buyer in Sale 3 was under pressure from
a franchisor which wanted another car dealership in the vicinity, thus, had to choose one of two
sites, therefore, bid more than a prior offer of $4,000,000. Plaintiff’s appraiser agreed that the
12 buyer was “motivated.” Demolition costs were not factored into the price. Therefore, the court
does not consider Sale 3 as a credible comparable.
Plaintiff’s appraiser’s Sale 3, 4, and 6 were in zones where car dealerships were not a
permitted or conditional use. So was the Township’s appraiser’s Sale 1. 11 Even if it is considered
as “legally permissible” on the sale date because by then the buyer has obtained a use variance
from the zoning requirements, it casts a shadow on the reliability of the sale price. The sale
contract would account for contingency factors (length of time to obtain a use variance and costs
associated with the risks of such contingency). This raises the issue whether the need to get a
use variance renders the pre-negotiated sales price at-market when the sale closes. The
Township’s appraiser correctly recognizes this aspect when he notes that where properties are
sold “subject to approvals,” with the “buyer responsible for obtaining all approvals,” it is
anticipated that “the approval process can take several years,” therefore, the sellers factor in the
risk of approval denial and delayed closing dates by seeking higher sale prices. Without proof
that the pre-negotiated sale price is the market price, it is not a credible indicator of market value.
While the Township’s appraiser attempted to adjust the sale price for this factor by -10%, the
court finds it unsupported. How is the seller’s risk, thus, alleged premium in the sales price,
measured or compared for this allowance? 12 These sales are therefore rejected.
11 See Eatontown Zoning Ordinance §89:44D(1)(22) (“new and used auto and recreational sales” is a permitted use in the M-B or Manufacturing Business Zone, not in the B-2 zone). 12 This does not mean that the court will never accept such an adjustment. There may be a reasonable basis for reducing the sale price depending on the adduced proofs. See The Appraisal of Real Estate at 366, 376 (“Zoning is a basic criterion in selecting comparables. Sites zoned the same as the subject property generally have the same or similar” HBU, thus, “may be the most appropriate comparables,” however, scarcity of sales in the “same zoning category” can justify using sales from a “similar zoning category” and if needed, adjustments can be made).
13 Plaintiff’s appraiser’s Sale 1 and the Township’s appraiser’s Sale 2 were in zones where
the permitted uses included auto dealerships. It is irrelevant that the Township’s appraiser’s Sale
2 was intended for use as a supermarket because in the HBU analysis, a value in use is irrelevant.
Similarly, it is irrelevant that the Township’s appraiser agreed on cross-examination that land
improved with a supermarket would have a different HBU than land improved by a car
dealership. This is because the inquiry here is value of vacant land sales under the cost approach,
not of improved sales under the sales comparison approach. As such, the court will use these
two sales, with more emphasis on the latter, it being closer to the valuation date, and located in
Monmouth County.
Unit of Measurement
The court finds a per-acre unit of measurement appropriate to the facts here. Plaintiff’s
appraiser agreed that for a car dealership, there is value in land because of parking needs and
inventory storage, factors important to car dealerships. Yet, by using the floor-to-area (FAR)
ratio, plaintiff’s appraiser appears to be under-valuing or assigning no value to land. While FAR
as a unit of measurement would be appropriate where the site is to be developed to maximize
productivity of the buildable area, the court agrees with the Township’s expert’s opinion that a
car dealership would not extend a building based on size of the land (such as here, the maximum
FAR is 20% and the Subject’s improvement is 13.96%).
Appraisers’ Adjustments
Plaintiff’s appraiser made no adjustments to his Sale 1, which the court has decided to
use. However, he made an upward adjustment for entrepreneurial profit at 5% to his final land
value conclusion because, he opined, car dealerships are owner-operated, and the “enterprise” of
car dealerships is of real property and a “going business concern” plus service and maintenance
14 of automobiles to be sold and those sold. The appraiser noted that the owner/operator is an
“entrepreneur” who/which “anticipates compensation for their efforts in the form of both return
on the real property as well as a return from the business venture,” and often, the expected return
“on the business venture” is greater than the expected “return on the real property.”
The court rejects this addition. It finds more persuasive the Township’s arguments that
entrepreneurial profit is provided for the project as a whole once it is completed which includes
the development of realty as a whole, not piecemeal.
The Township’s appraiser made five adjustments to his Sale 2, which this court has
decided to use: demolition costs (+$25,000); zoning or “subject to approvals” (-10%); time
(+2%); lack of approvals (which termed “zoning/approvals adjustment”) (+35%); and size
(+10% the comparable being 5.08 acres versus the Subject’s 2.5 “useable” acres). All the
adjustments are rejected.
The adjustment for “subject to approvals” (zoning) is unwarranted. The comparable was
in a zone which permitted car dealerships. - See - Hazlet Zoning Ordinance Code §181-404.03. The adjustment for market conditions is rejected due to the veracity of relying on data
source: retail property sales for Northern New Jersey from CoStar for 2010-2019. It is unknown
what type of properties CoStar considered as retail. Also unclear is whether the sales were
improved or tenanted (the appraiser indicating that the “rate of increase in recent years is clearly
extraordinary and is perhaps due to the sale of net leased properties”), when here the issue is sale
of vacant land. Nor is it clear that sales in “Northern New Jersey” is the same as the local market
in Monmouth County.
The court rejects the adjustment for size as there is no objective proof here that the
principle of the economies of scale (small sells for more), should apply. Sales 1 and 2 used by
15 the Township’s appraiser are of land measuring 4 acres and 5.08 acres and sold for $4,700,000
and $5,800,000 six months of each other in 2017. Their sale prices do not, per se, evidence that
smaller lots sell for more, warranting an adjustment of +10%. 13
Making an adjustment for lack of site plan approvals (approvals as to compliance with
the zoning laws as to setbacks, building size, impervious coverage, and the like) is reasonable.
Both appraisers agreed that property purchased with such approvals in place is worth more than
one without. The question is the basis for the adjustment amount. There is nothing to show how
the time and effort taken to obtain site plan approvals for improving the Township’s appraiser’s
land sale 2 with a supermarket translates to 35% of the sale price, and would translate to 35% if
site plan approvals were sought for improving the land with a car dealership as opposed to a
supermarket. Therefore, the court rejects the +35% adjustment.
The lack of any underlying basis for the estimated $25,000 addback for demolition costs
requires its rejection. While provision for such an expense is usually warranted, the amount
provided is usually based on verification from the parties since “[t]hese costs are often quantified
in price negotiations and can be discovered through verification of the sale transaction data.”
The Appraisal of Real Estate, at 412. 14
In sum, the court must use the unadjusted sale prices of plaintiff’s appraiser’s Sale 1 and
the Township’s appraiser’s sale 2. The per-acre price for each sale is $574,713 and $1,141,732.
The court places most weight to the latter it being in Monmouth County and its sale date most
proximate to the assessment date and finds the per-acre price as $950,000. The Township’s
13 The Township’s appraiser’s report notes that this is a “modest” adjustment “because the subject is potentially subdivideable.” However, there was no discussion of the Subject’s subdivision potential anywhere in the report or during testimony. 14 Plaintiff’s appraiser did not include an estimate of the demolition costs for his comparable Sale 1 since he did not verify the same. 16 appraiser estimated the Subject as having 0.5 acres of wetlands in the rear, therefore, only 2.5
acres was usable. The “geo map” shows a portion of Subject’s property’s lot line as
encompassing a portion of a body of water. The aerial view of the Subject (using Google) shows
the area abutting the parked vehicles in the rear as being surrounded by trees and foliage.
However, there was no support for the non-useability of the estimated 0.5 acres. Was 0.5 acres
officially declared to be “buffer” zones which should not be developed? Or was the buffer zone
lesser? No zoning or other information was provided in this regard. Even if there was some
type of official buffer, the question arises whether an adjustment should have been made for the
Subject’s alleged freshwater lands as opposed to deeming all 0.5 acres valueless, and if so what
would be the amount of that adjustment? Without any of this information, the court is
constrained to use 3 acres, which then provides for a total land value of $2,850,000.
(ii) Improvement Value
Both appraisers deemed the building as Class C Masonry of average condition and
quality. Both relied on M&S cost data for deriving the replacement cost as new (RCN).
Plaintiff’s appraiser concluded the RCN for the main building and site improvements as
$2,576,596 (including entrepreneurial profit). The Township’s appraiser’s RCN was $2,315,692
(with no entrepreneurial profit). 15 However, their respective conclusions of the depreciated RCN
was $1,085,781 (plaintiff’s appraiser) versus $1,750,000 (rounded) (Township’s appraiser).
15 Plaintiff’s appraiser used a slightly higher current cost multiplier (CCM) and local cost multiplier (LCM) to both the main building (1.05; 1.17) and site improvements (1.04; 1.17) than the Township’s appraiser (1.02; 1.16 for base cost of building, and 1.01; 1.16 to site improvements). The LCM was for the City of Asbury Park, closest in area to the Subject. The appraisers’ base cost for the building also differed slightly ($88.29 PSF by plaintiff’s appraiser based on M&S cost data as of December 2016 versus $94 PSF by the Township’s appraiser based on M&S cost data as of February 2020 and December 2019). The latter however reduced the PSF cost by the M&S factor of 0.945 to “adjust the cost estimate back” to the valuation date, thus a “cost decrease of about 5.5% from current levels.” 17 This was due to difference in physical depreciation for the building (45% versus 20%); for site
improvements (65% versus 20%); functional obsolescence (10% versus zero); entrepreneurial
profit (5% versus zero).
Physical Depreciation for Building
Both appraisers agreed that the building’s chronological age was 28 years. They also
agreed that the Subject’s economic life was 40 years, per the M&S data for “complete auto
dealerships,” which both appraisers agreed are those with all components of a dealership such as
sales, offices, and service areas. 16 Plaintiff’s appraiser deemed the effective age as 18 years
based on his personal inspection and the fact that there were no upgrades to the Subject except
for construction of the arch in the façade. Thus, his depreciation under the age/life method was
45% (18÷40).
The Township’s appraiser deemed the Subject’s effective age as 15 years (since he
estimated age in multiples of five) and used 20% per the December 2018 M&S depreciation table
since, he stated, those were developed based on market reaction. The depreciation table attached
to his report was for commercial properties which include some or all properties listed in sections
11-18 and 64 of the M&S data. “All” properties listed in Section 14 are included. Section 14
includes “complete auto dealerships” per plaintiff’s appraiser addenda to his report showing base
cost (as of February 2016). It is unclear which other properties are included in Section 14.
M&S’ explanation of the physical depreciation tables notes that the “straight-line”
age/life or “linear” method is an “accounting-type concept,” which is simple but unrealistic.
16 The 40 years life is reflected in the December 2018 M&S data, at Chapter 97, p.12, titled “Life Expectancy Guidelines – Typical Building Lives” for properties included in “Sections 14 & 44 – Garages, Industrials And Warehouses,” provided to the court by the Township. Included in the list of buildings is “complete auto dealerships” and the life expectancy is based on condition and Class. Class C, average condition, and Classes D and S in “good and excellent” condition, are given 40 years of life expectancy. 18 Using a “constant” rate assumes “equal wear or serviceability each year” which is not necessarily
true because (i) “passage of time may not itself” justify depreciation if the property is “well
maintained and functionally sound,” and (ii) it “fails to recognize any value-in-use.”
Per M&S, a nonlinear approach is “the best approach” since it “is a combination of age
and condition.” This is the “extended life” theory which is that the older the building the
“greater” is its “life expectancy.” Although the building is older, periodic “correction of
deficiencies may lower the effective age and lengthen the remaining life,” which in turn “reverses
a continuous progression down the effective age scale,” which then reduces the depreciation
rates. “This nonlinear approach accounts for a greater present value or slower depreciation rate
in the early years as compared to the later years when diminishing serviceability and higher
maintenance can accelerate depreciation.”
M&S explains that its depreciation tables “were developed from actual case studies of
sales and market value appraisals and formed the basis of the extended life theory which
encompasses a remaining life and effective age approach.” Land value was deducted from
“confirmed sales prices” to obtain the building’s value (residual approach), after which the RCN
of that building was computed. The depreciation percentage was result of dividing the difference
between the RCN “and the residual sales price” by the RCN. A “similar procedure” was used
“with the market value appraisals, always excluding those observed cases having excessive
obsolescence.”
M&S then collated the data “by type of construction and usage, plotted with similar
typical total life expectancies, with curves computed for the groupings, for which sufficient data
was available, for statistical reliability.” From this collation, it found “a matching family of
empirical mathematical curves . . . from which the depreciation for any initial (when new) life
19 expectancy could be computed under normal market conditions.” Depending on an appraised
building’s use and operations, “[t]he proper curve to use is . . . a matter of judgment on the part
of the appraiser, considering the usage and the type of return normally expected, whether cash,
equity or intangible amenities.”
M&S instructs an appraiser to first determine the building’s condition, “severity of use”
by personal inspection; then its “true age;” then its effective age (by comparing the building with
“like properties” and reviewing any maintenance, repair or modernization issues); then its life
expectancy; and then apply the depreciation rate from the tables based on the type of property.
As noted above, both appraisers deemed the Subject’s building to be in average condition.
M&S defines this condition (in its explanation of Depreciation as of December 2018) as a
building which shows “[s]ome evidence of deferred maintenance and normal obsolescence with
age . . . [b]ut with all major components still functional and contributing toward an extended life
expectancy.” Further, the building’s “effective age and utility are standard for like properties of
its class and usage.”
The M&S market extraction method is similar to the one explained in The Appraisal of
Real Estate, 605, 608-10. However, as plaintiff correctly points out, M&S’ data is usually
national, therefore, it is unknown whether any local (state or county) factors were included in
the data of complete auto dealerships. See id. at 605 (in using a “market extraction” method to
estimate depreciation, although not essential, “it is desirable” to use “current” comparable sales
of improved property which are “located in the subject property’s area.” Comparable sales “can
be from a” comparable “market area” which is one with “similar tastes, preferences, and external
influences”). Another issue is whether the extraction of building value from the sale price by
M&S accounted for adjustments for non-realty items (franchise, goodwill, inventory), and if so
20 whether those adjustments are appropriate for a dealership such as the Subject. Ibid. (appraiser
should make “appropriate adjustments to the comparable sale prices for certain factors, including
property rights conveyed, financing, and conditions of sale” but not for market conditions or
“physical, functional or external impairments”). Yet another issue is whether the RCN in the
M&S data is computed as of the assessment date. See id. at 608 (appraiser should estimate the
RCN “at the time of sale” of the comparable property).
These issues then render plaintiff’s “simpler” age/life method of estimating depreciation
more persuasive especially since the Subject has undergone no major renovation since 1989.
The court will therefore use 45% for physical depreciation for the building.
Functional Obsolescence
Plaintiff’s appraiser claimed that a 10% functional obsolescence provision is needed. His
report explained this was due to outdated design, materials and layout and insufficient parking.
He testified that new car dealerships typically now have a new car delivery area, an enclosed
drive-through service lane, and a car wash. The Township’s appraiser disagreed since the
Subject was fully functional, well-maintained, and sufficient parking due to lease of the adjacent
lot. The court agrees with the Township’s appraiser and the photographs support his opinion.
Entrepreneurial Profit
Plaintiff’s appraiser added 5% for entrepreneurial profit which the Township’s appraiser
felt was inappropriate since “[a]uto dealerships are typically built for owner occupancy, to
provide the necessary spaces (showroom, service, administrative office, etc.) to operate a
business” and not “built on ‘spec.’” The court agrees with plaintiff’s appraiser’s provision. See
Beneficial Facilities Corp. v. Borough of Peapack & Gladstone, 11 N.J. Tax 359, 381 (Tax 1990)
(“Entrepreneurial profit is justified, even for an owner-constructed and owner-occupied building
21 because the principle of uniformity requires such property to be treated in the same manner as
investment or speculation type property.”) (citation omitted), aff’d, 13 N.J. Tax 112 (App. Div.
1992).
Depreciated Cost of Site Improvements
The court agrees with plaintiff’s appraiser’s use of M&S base costs for the building (as
of February 2016) and site improvements (as of December 2015), the same being closer to the
assessment date than the Township’s appraiser’s base costs which were as of February 2020
(building) and December 2019 (site improvements). The court also accepts plaintiff’s
appraiser’s depreciation estimate for site improvements.
The resultant depreciated improvement RCN is $1,293,523 which plus $2,850,000 land
value provides the Subject’s value at $4,143,523 rounded to $4,143,525 (rounded).
CONCLUSION
The court finds the Subject’s value is $4,143,525. Parties will inform the court on the
application of the Chapter 123 ratio no later than March 26, 2021.
Very Truly Yours,
-- Mala Sundar, P.J.T.C.