Goldmann, Freund and Foley. The opinion of the court was delivered by Freund, J.A.D.
The City of East Orange appeals from a final judgment of the Division of Tax Appeals affirming the reduction by the County Board of Taxation of the original assessment of respondent's real property located at 55 Glenwood Avenue, East Orange, N.J., for the tax year 1959.
The property consists of a plot of land upon which is erected a ten-story apartment house containing 218 apartments. The building was erected in 1952 and was financed under the terms of section 608 of the National Housing Act, 12 U.S.C.A. § 1743, which allows the Federal Housing Authority (FHA) to insure the mortgage up to 90% of construction cost. On the date of appraisal, the balance on the property's FHA mortgage was $1,345,886. The dispute is confined to the assessment against the improvement; the assessment on the land is unchallenged.
The parties have stipulated that the common level of assessment used by the city for the 1959 tax year was 50% of true value. At this level of assessment, the local assessor assessed the improvement at $751,700. The taxpayer alleged discrimination on its appeal to the County Board of Taxation. After a hearing, the board reduced the assessment on the building to $620,700.
Both parties filed cross-appeals with the Division of Tax Appeals. The taxpayer sought a further reduction; and the city, an increase in the assessment. These appeals were heard jointly by a Division commissioner to whom the appeals were assigned. Each party produced a real estate expert. They testified at length concerning their estimates of the property's true value. Their appraisals are made a part of the record.
The taxpayer's expert, Rudolph Kruger, using an income capitalization approach, valued the improvements at $1,034,700 (which would result in a common level of assessment of $517,350). On the other hand, the city's appraiser, Franklin Hannoch, Jr., valued the improvement at $1,494,100 (or $747,050 at the common level of assessment). Hannoch's
valuation was predicated upon a study of three approaches to value -- "reproduction cost less depreciation, capitalization of net income, and value by the comparative sales basis." He also mentioned a "fourth approach which doesn't appear in here" based upon the "typical investors' approach of a net income consideration." The city, subsequent to this hearing, abandoned reliance upon comparative sales.
Hannoch conceded that a crucial determinant of his valuation of $1,494,100 was the FHA mortgage to which he gave "prime consideration." He continued, "I consider this [his appraisal] to be the market value of the property based on this mortgage." It was his opinion that "608 properties are sold * * * on the basis of their net income, which means that the net income less the deduction for the interest and mortgage insurance, which is held by the F.H.A."
The commissioner's finding of fact and order of judgment extensively reviewed and analyzed the testimony of opposing experts. He concluded that each party had failed to sustain the requisite burden of proof to alter the judgment of the board. Thereupon he dismissed both appeals and affirmed the assessment. On appeal from this determination, the city argues that the Division acted arbitrarily by (1) sustaining the assessment because this sum fails to reflect the balance of the mortgage on the premises as of the assessing date and (2) failing to make an independent finding of value.
The Attorney General, representing the Division, has filed a statement in lieu of brief, expressing the opinion that the merits of the appeal have been fully presented by both parties and that his participation would not be necessary.
In our recent opinion in City of Passaic v. Botany Mills, Inc. , 72 N.J. Super. 449 (App. Div. 1962), certif. denied 37 N.J. 231 (1962), the proper standards of review for the present case are fully stated. Since a presumption of correctness exists in favor of the board's judgment, the city as appellant before the Division had the burden of ultimate persuasion to upset the ...