On appeal from the Tax Court of New Jersey.
Morton I. Greenberg, J. H. Coleman and Long. The opinion of the court was delivered by Morton I. Greenberg, P.J.A.D.
[208 NJSuper Page 657] This matter comes on before this court on appeal by defendant Borough of Fairview from tax court judgments reducing the assessed valuations for 1982 of 19 residential condominium units in a building known as Hamilton Court owned by plaintiff Cigolini Associates and applying the Freeze Act, N.J.S.A. 54:51A-8, to the assessments for the next two assessment years. Hamilton Court, though legally converted to the 19 individual units between October 1, 1980 and October 1, 1981, continued to be operated by plaintiff as an ordinary apartment house following conversion. However, inasmuch as the conversion was completed prior to October 1, 1981 (see N.J.S.A. 54:4-23) each of the units was individually assessed for 1982, the assessments ranging from $26,900 to $32,400, most being near the lower end of the range. The assessments totaled
$542,300.*fn1 Plaintiff appealed all 19 assessments to the Bergen County Board of Taxation which upheld the assessments.
Following the decisions by the county board plaintiff filed 19 complaints in the Tax Court, each seeking a reduced assessment for a single unit. Prior to trial in the Tax Court the parties moved for rulings on whether the building should be considered as divided into condominiums rather than continuing to be an apartment house for tax purposes. Plaintiff conceived that a negative ruling on that issue would allow it to value the building as an entity using an economic or income approach. Defendant believed that if the building were treated as divided into condominiums that approach to valuation could not be used. The judge denied the pretrial motions, deciding instead to determine the best method of valuing the property from the proofs at trial.
At trial the following evidence was developed.*fn2 Plaintiff built Hamilton Court in 1963 and had operated it as a rental apartment building. In 1980 it undertook to convert the property into single bedroom condominiums, 18 of 3 1/2 rooms with bath and one 2 1/2 rooms with bath. Following administrative approval for registration of the conversion, plaintiff in June 1981 recorded a master deed creating and establishing the condominiums. See N.J.S.A. 46:8B-8. By reason of the conversion the tenants had a statutory right to purchase their units under N.J.S.A. 2A:18-61.8, though by the time of the trial none had done so.*fn3
Barry Barkan testified as an expert for plaintiff. In Barkan's view the highest and best use of the property "is for continued rental purposes and as such the most compelling and
accurate measure of its value would be the income approach to value. . . ." Barkan believed that recording the master deed had no effect on valuation because "the filing in itself does not address the marketing aspects of the property which are most directly addressed and measured by the experience of the property," by which he meant plaintiff's inability to sell the units. In Barkan's opinion even though Hamilton Court was well built and well maintained the units were not selling because plaintiff was offering more desirable units for sale in another building in Fairview. After considering what he thought were the material factors regarding valuation, Barkan concluded that "it would be improper to accord condominiumization value" to Hamilton Court.
Barkan used the income approach to valuation by capitalizing the achievable net income from the property. He developed a capitalization rate by the mortgage equity method, arriving at a figure of 12.71% which, when adjusted for a tax factor, produced an overall capitalization rate of 15.24%. Application of this rate to what Barkan thought was the net operating income derived from the units, $42,742 yielded a market value of $280,000. Barkan also valued the property by the building residual method and arrived at a figure of $290,000. Ultimately Barkan valued the building at $285,000, midway between the two figures achieved by the income approach and the building residual method.
William J. Stack testified as an expert for defendant. In his view, "predicated on the fact that the master deed was filed," the highest and best use of the property was for condominium purposes. Stack recognized that the units had not been selling but he thought this did not mean that the highest and best use of the property was not for condominiums as the marketing period had been too short. In Stack's opinion, concluding that the conversion was not the best use of the property would have been second guessing plaintiff, as plaintiff had actually converted the building.
Stack valued the property three different ways. Under the "comparative" approach, he calculated the "sell out" price of the building at $1,033,000, a figure predicated on plaintiff's proposed selling price of between $55,000 and $57,000 for each unit. Stack, however, lowered the figure to reflect costs that would be incurred by the owner on the resale as well as an entrepreneurial profit. By this method he arrived at a value of $587,519. He adhered to this value even though he recognized that it had been proposed that the tenants were to receive a 20% discount if ...