On appeal from the Tax Court of New Jersey.
Milmed, Morton I. Greenberg and Furman. The opinion of the court was delivered by Milmed, P.J.A.D.
The Borough of Hasbrouck Heights (Borough) appeals from a judgment of the Tax Court concerning the local property assessment for the year 1976 on certain real property of respondent First Real Estate Investment Trust of New Jersey.
The property, situated at 160 Terrace Avenue in Hasbrouck Heights, consists of a plot of land approximately 78 feet by 229 feet, improved with a three-story brick apartment building built in 1939 that contains 20 apartment units and a floor of drive-in garages. For the tax year 1964 the property was assessed at values established in the Borough's 1963 revaluation program,
viz, land $21,800, improvements $220,100, for a total of $241,900. Following a sale of the property for $200,000 in 1964, the assessment on the improvements was, in accord with a stipulation of settlement of an appeal taken by the taxpayer, reduced from $220,100 to $178,200, resulting in a total assessment of $200,000. For each of the ensuing years, up to and including the 1976 tax year under review, the Borough assessed the property at the same values:
On the taxpayer's appeal, the 1976 assessment was initially reviewed and sustained by the Bergen County Board of Taxation. The judgment of the county board was appealed by the taxpayer to the Division of Tax Appeals, now the Tax Court.
The matter was heard in the Tax Court. The proofs consisted of the testimony of two experts -- Barry Barkan for the plaintiff-taxpayer and Kenneth Cantoli, tax assessor for defendant Borough -- and the written appraisals of the experts which were admitted in evidence. Barkan, relying exclusively on what he referred to as "the income approach for valuation," testified in essence that the gross income estimate that he used in this approach was the 1975 "gross rents of the 20 apartment units [which] was reported at $48,964." He did so without making any attempt to determine what he termed the "market potential," or economic rent, for the units. His reasoning seems to be that since "the community was under rent stabilization" it was not necessary for him to find the "fair rental value" of the property, "professionally termed 'economic' rent or income," Parkview Village Assoc. v. Collingswood, 62 N.J. 21, 29 (1972), to which a proper capitalization rate could be applied, because the rents in this case were "not free to be . . . increased to higher market potential."*fn1 For the same reason, he "did not engage in
an analysis of sales of apartments in Hasbrouck Heights" to determine what, if any, "recognizable trend" in the value of such property was prevalent in the Borough. With the $48,964 rent figure as his base, he projected a total property valuation of $246,400, and applied to that his "unweighted, unclassified ratio" of 43.73 percent which he arrived at from his own "sales ratio study" and which he preferred "to application of the Director's Ratio," to "show an indicated assessment for the 1976 tax year of $107,800." Cantoli's valuations, using all three of the traditional methods, i.e., the cost approach, the market data approach, and the income approach, resulting in a valuation of $369,000, were ...