NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-2542-16T2
MIBAR, LLC,
Plaintiff-Appellant,
v.
ELIZABETH CITY,
Defendant-Respondent.
_________________________________
Submitted January 24, 2018 – Decided July 10, 2018
Before Judges Alvarez and Nugent.
On appeal from the Tax Court of New Jersey, Docket No. 014691-2013.
Schneck Law Group, LLC, attorneys for appellant (Michael I. Schneck, on the briefs).
Blau & Blau, attorneys for respondent (Robert D. Blau, on the brief).
PER CURIAM
Plaintiff, Mibar, LLC, challenges the 2013 property tax
assessment of its commercial property in Elizabeth City
("plaintiff's property" or "the property"). After unsuccessfully
challenging the original assessment of $100,000 — $68,600 for the land and $31,400 for improvements — before the Union County Board
of Taxation, plaintiff filed a complaint with the Tax Court seeking
review of the Tax Board's judgment. The Tax Court affirmed the
assessment. In doing so, the court made material findings of fact
that were unsupported by the record. For that reason, we reverse
the Tax Court judgment and remand for a new trial.
During the trial, plaintiff's expert, a State Certified
General Real Estate Appraiser, described plaintiff's property as
a 2040 square foot, freestanding fast food facility situated on a
.2 acre corner lot in a "good retail strip." The property is
"headed by a Dunkin Donuts." The interior finish is typical of a
fast food or Dunkin Donuts facility with tiled floors, drywalls,
and suspended ceiling. It is heated and air conditioned by forced
hot air and a central air conditioning system. The expert opined
the best use of the property was a fast food facility.
The expert also opined the income approach was the most
appropriate for appraising the property. In order to provide an
estimate of the property based on an income approach, the expert
employed the following methodology. First, he determined the
market income plaintiff's property would produce as of October 1
of the pre-tax year. Next, he computed deductions based on vacancy
and credit loss. He then made adjustments for the property owner's
expenses: management fees, leasing commissions, and a reserve for
2 A-2542-16T2 replacement over time of structural components. Last, the expert
derived a ratio known as the capitalization rate, which he
explained was "a rate that converts net income to an indication
of market value."
To estimate the property's market income, the expert analyzed
five "comparable rentals of similar typed properties." Two of the
comparables were from other counties. The three comparables in
Union County included one fast food facility in Scotch Plains and
two fast food facilities in the same shopping center in New
Providence.
Because the Union County comparables were newer than
plaintiff's property, the expert made a downward "quality
adjustment" concerning plaintiff's property of 7.5 percent. The
expert made no other adjustments concerning plaintiff's property.
He concluded the market rent for plaintiff's 2040 square foot
property was thirty dollars per square foot for a potential gross
income of $61,200. Deducting expenses resulted in a net income
of $47,920. The expert derived a capitalization rate of 7.8
percent, which, when applied to the net income, resulted in a
market value of $614,358. The expert rounded this value to
$614,000. Thus, the expert concluded plaintiff's property's
market value as of October 1, 2012, the pre-tax year, was $614,000.
3 A-2542-16T2 The tax assessment on a property of that value was $82,000, $18,000
less than the $100,000 Board of Taxation judgment.
Following cross-examination, during re-direct, the expert
testified there was no difference in value between a standalone
facility and similar attached facilities in strip malls, at least
with respect to fast food facilities. He explained that because
fast food establishments are generally small facilities, there is
"no difference in the standalone or attached units."
The court asked the expert about the basis for this opinion.
The expert explained he based his opinion on his analysis of
standalone rentals of fast foods. He also explained the subject
property, though a standalone, was on a very small corner of a
very small lot. In addition, the lot is adjacent to a neighborhood
shopping center so if one did not look closely one would assume
the property was part of the shopping center. The expert added:
[S]o it's not to say there may not be a single tenanted standalone fast food somewhere that would garner a higher rental for a number of reasons, including location and . . . other things. But in consideration of this particular subject property and its physical characteristics in comparison to the comparable rentals I used . . . very, very comparable and [I] don't think an adjustment at all would be required for being standalone or not.
The expert also opined "the draw of the neighborhood shopping
center component more than balances out any corner location that
4 A-2542-16T2 the subject [property] would have on a . . . tertiary commercial
road."
With three exceptions, the Tax Court accepted the expert's
testimony. First, the court disregarded the two comparables
outside Union County because they were "not necessarily indicative
of the fair market value of the fast food restaurant within the
Union County corridors."
Next, the court rejected the expert's 7.5 percent quality
adjustment on one of the remaining comparables. It explained:
The court has some familiarity with that subject property from other tax appeal matters and does not find . . . based upon the testimony of the appraiser . . . nor looking at the pictures that were presented before the court . . . that that subject property warrants a superior quality adjustment of 7.5 percent.
Last, the court determined a standalone establishment
warranted a higher rental value than fast food restaurants that
did not stand alone. The court explained:
[T]he court has some concerns based on the court's knowledge that . . . generally in the fast food marketplace in certain fast food vendors[,] . . . a standalone establishment warrants a higher rental value. And, thus, the court is going to apply a [five] percent adjustment upwards to [the Union County] comparable rental[s] . . . to account for what the court has knowledge of as the fact that . . . that the subject property is a standalone property, and [the Union County] comparable rentals . . . are not standalone properties,
5 A-2542-16T2 and that in the marketplace certain vendors and certain lessees require standing fast food marketplace . . . because of its visibility and specifically the visibility of this subject property on a corner lot.
As a result of the adjustments it made, the court determined
thirty-two dollars per square foot was an appropriate value for
plaintiff's property. Thus, under the court's analysis, the net
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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-2542-16T2
MIBAR, LLC,
Plaintiff-Appellant,
v.
ELIZABETH CITY,
Defendant-Respondent.
_________________________________
Submitted January 24, 2018 – Decided July 10, 2018
Before Judges Alvarez and Nugent.
On appeal from the Tax Court of New Jersey, Docket No. 014691-2013.
Schneck Law Group, LLC, attorneys for appellant (Michael I. Schneck, on the briefs).
Blau & Blau, attorneys for respondent (Robert D. Blau, on the brief).
PER CURIAM
Plaintiff, Mibar, LLC, challenges the 2013 property tax
assessment of its commercial property in Elizabeth City
("plaintiff's property" or "the property"). After unsuccessfully
challenging the original assessment of $100,000 — $68,600 for the land and $31,400 for improvements — before the Union County Board
of Taxation, plaintiff filed a complaint with the Tax Court seeking
review of the Tax Board's judgment. The Tax Court affirmed the
assessment. In doing so, the court made material findings of fact
that were unsupported by the record. For that reason, we reverse
the Tax Court judgment and remand for a new trial.
During the trial, plaintiff's expert, a State Certified
General Real Estate Appraiser, described plaintiff's property as
a 2040 square foot, freestanding fast food facility situated on a
.2 acre corner lot in a "good retail strip." The property is
"headed by a Dunkin Donuts." The interior finish is typical of a
fast food or Dunkin Donuts facility with tiled floors, drywalls,
and suspended ceiling. It is heated and air conditioned by forced
hot air and a central air conditioning system. The expert opined
the best use of the property was a fast food facility.
The expert also opined the income approach was the most
appropriate for appraising the property. In order to provide an
estimate of the property based on an income approach, the expert
employed the following methodology. First, he determined the
market income plaintiff's property would produce as of October 1
of the pre-tax year. Next, he computed deductions based on vacancy
and credit loss. He then made adjustments for the property owner's
expenses: management fees, leasing commissions, and a reserve for
2 A-2542-16T2 replacement over time of structural components. Last, the expert
derived a ratio known as the capitalization rate, which he
explained was "a rate that converts net income to an indication
of market value."
To estimate the property's market income, the expert analyzed
five "comparable rentals of similar typed properties." Two of the
comparables were from other counties. The three comparables in
Union County included one fast food facility in Scotch Plains and
two fast food facilities in the same shopping center in New
Providence.
Because the Union County comparables were newer than
plaintiff's property, the expert made a downward "quality
adjustment" concerning plaintiff's property of 7.5 percent. The
expert made no other adjustments concerning plaintiff's property.
He concluded the market rent for plaintiff's 2040 square foot
property was thirty dollars per square foot for a potential gross
income of $61,200. Deducting expenses resulted in a net income
of $47,920. The expert derived a capitalization rate of 7.8
percent, which, when applied to the net income, resulted in a
market value of $614,358. The expert rounded this value to
$614,000. Thus, the expert concluded plaintiff's property's
market value as of October 1, 2012, the pre-tax year, was $614,000.
3 A-2542-16T2 The tax assessment on a property of that value was $82,000, $18,000
less than the $100,000 Board of Taxation judgment.
Following cross-examination, during re-direct, the expert
testified there was no difference in value between a standalone
facility and similar attached facilities in strip malls, at least
with respect to fast food facilities. He explained that because
fast food establishments are generally small facilities, there is
"no difference in the standalone or attached units."
The court asked the expert about the basis for this opinion.
The expert explained he based his opinion on his analysis of
standalone rentals of fast foods. He also explained the subject
property, though a standalone, was on a very small corner of a
very small lot. In addition, the lot is adjacent to a neighborhood
shopping center so if one did not look closely one would assume
the property was part of the shopping center. The expert added:
[S]o it's not to say there may not be a single tenanted standalone fast food somewhere that would garner a higher rental for a number of reasons, including location and . . . other things. But in consideration of this particular subject property and its physical characteristics in comparison to the comparable rentals I used . . . very, very comparable and [I] don't think an adjustment at all would be required for being standalone or not.
The expert also opined "the draw of the neighborhood shopping
center component more than balances out any corner location that
4 A-2542-16T2 the subject [property] would have on a . . . tertiary commercial
road."
With three exceptions, the Tax Court accepted the expert's
testimony. First, the court disregarded the two comparables
outside Union County because they were "not necessarily indicative
of the fair market value of the fast food restaurant within the
Union County corridors."
Next, the court rejected the expert's 7.5 percent quality
adjustment on one of the remaining comparables. It explained:
The court has some familiarity with that subject property from other tax appeal matters and does not find . . . based upon the testimony of the appraiser . . . nor looking at the pictures that were presented before the court . . . that that subject property warrants a superior quality adjustment of 7.5 percent.
Last, the court determined a standalone establishment
warranted a higher rental value than fast food restaurants that
did not stand alone. The court explained:
[T]he court has some concerns based on the court's knowledge that . . . generally in the fast food marketplace in certain fast food vendors[,] . . . a standalone establishment warrants a higher rental value. And, thus, the court is going to apply a [five] percent adjustment upwards to [the Union County] comparable rental[s] . . . to account for what the court has knowledge of as the fact that . . . that the subject property is a standalone property, and [the Union County] comparable rentals . . . are not standalone properties,
5 A-2542-16T2 and that in the marketplace certain vendors and certain lessees require standing fast food marketplace . . . because of its visibility and specifically the visibility of this subject property on a corner lot.
As a result of the adjustments it made, the court determined
thirty-two dollars per square foot was an appropriate value for
plaintiff's property. Thus, under the court's analysis, the net
operating income for the property was $51,114. The court accepted
plaintiff's appraiser's capitalization rate. Applying the
capitalization rate to the court's determination of net operating
income resulted in a market value of plaintiff's property of
$655,300 as of October 1, 2012. The court explained:
The subject property's assessment for the 2013 year was $100,000. Thus, the mathematical formula . . . involves taking the $100,000 assessment, dividing it by the $655,300 value, which determines the ratio of .1526 for the subject property. Taking the determined fair market value[,] . . . the ratio is determined by applying the assessment to the . . . court's determined fair market value, the court concludes that the .1526 falls within the lower and upper limits established by . . . the City of Elizabeth for the 2013 tax year, the lower limit being 11.35 percent, the upper limit being 15.35 percent.
The court thus concluded plaintiff was not entitled to relief.
Plaintiff appealed from the order the judge entered following his
decision.
6 A-2542-16T2 On appeal, plaintiff argues that when the court rejected the
expert's 7.5 percent negative adjustment for one of the
comparables, the judge relied upon facts outside the record.
Plaintiff also argues when the judge relied upon his "knowledge
that . . . generally in the fast food market place and certain
fast food vendors . . . a standalone establishment warrants a
higher rental value," it did so without any evidentiary support
in the record. Last, plaintiff contends the City of Elizabeth's
attorney's conduct prejudiced plaintiff at trial when the attorney
questioned the expert based on assumed facts not in evidence and
repeatedly referred to evidence not in the record. According to
plaintiff, the cumulative violation of the Rules of Evidence
warrants reversal of the tax court's judgment.
The City of Elizabeth counters there is substantial evidence
in the record to support the tax court's determination of market
value. The City asserts the judge's five percent upward adjustment
because plaintiff's property was a standalone facility was
properly based on the judge's experience and knowledge. In fact,
the City asserts, if the judge had a subjective belief an
adjustment was necessary, the judge was duty bound to make the
appropriate judgment. The City contends no conduct on the part
of the City's attorney prejudiced plaintiff.
7 A-2542-16T2 An appellate court's review of a Tax Court decision is
deferential. Estate of Taylor v. Dir., Div. of Taxation, 422 N.J.
Super. 336, 341 (App. Div. 2011). This is because "judges
presiding in the Tax Court have special expertise." Glenpointe
Assocs. v. Twp. of Teaneck, 241 N.J. Super. 37, 46 (App. Div.
1990). Thus, a "[t]ax [c]ourt judge's findings will not be
disturbed unless we conclude they are arbitrary or lack substantial
evidential support in the record." UPSCO v. Dir., Div. of
Taxation, 430 N.J. Super. 1, 7-8 (App. Div. 2013) (citing Yilmaz,
Inc. v. Dir. Div. of Taxation, 390 N.J. Super. 435, 443 (App. Div.
2007)). In contrast, we review a Tax Court's legal determinations
de novo. Id. at 8.
"The Tax Court has the duty to apply its own judgment to
valuation data submitted by experts in order to arrive at true
value." Glenpointe Assoc., 241 N.J. Super. at 46 (citing Warren
Tp. v. Suffness, 225 N.J. Super. 399, 414 (App. Div. 1988)).
Nonetheless, a "Tax Court's right to make an independent assessment
is not boundless; it must be based on evidence before it and data
that are properly at its disposal." Ibid. (citing F.M.C. Stores
Co. v. Borough of Morris Plains, 100 N.J. 418, 430 (1985)). A Tax
Court "must not arbitrarily assign a value to the property which
is not supported in the record." Ibid. (citing Warren Tp., 225
N.J. Super. at 414).
8 A-2542-16T2 Here, the Tax Court judge made a determination based on his
"knowledge that . . . generally in the fast food market place ...
a standalone establishment warrants a higher rental value." Based
on that general proposition, and without any evidence in the record
to support either it or its application to the particular facts
before it, the Tax Court applied a five percent upward adjustment
to the Union County comparables.
Likewise, the court appeared to rely on its own familiarity
with a comparable and rejected a 7.5 percent quality adjustment
for the comparable. Although the court also referenced photographs
in the record, it is not clear the court would have made the same
determination without applying its personal assessment of the
property.
Although the Tax Court had the right to reject plaintiff's
expert's opinion, and though the court – as defendant suggests –
had the duty to apply its own judgment to valuation data submitted
by the expert – the court did not have the right to make an
independent assessment devoid of evidentiary support. For that
reason, we reverse the Tax Court judgment and remand for a new
trial.
In view of our disposition of these arguments, we need not
address plaintiff's argument that counsel for the City referred
to evidence not before the court. Certainly, such references are
9 A-2542-16T2 unlikely to affect a court's decision, but we presume, as in any
case, that during the remand hearing all counsel will confine
themselves to presenting a case based on the evidence properly
admitted during the hearing.
Reversed and remanded. We do not retain jurisdiction.
10 A-2542-16T2