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Jersey City Redevelopment Agency v. Costello

Decided: March 13, 1991.

JERSEY CITY REDEVELOPMENT AGENCY, A BODY CORPORATE AND POLITIC OF THE STATE OF NEW JERSEY, PLAINTIFF-APPELLANT,
v.
JOHN B. COSTELLO AND ANN W. COSTELLO, HIS WIFE, ET AL., DEFENDANTS-RESPONDENTS. JERSEY CITY REDEVELOPMENT AGENCY, A BODY CORPORATE AND POLITIC OF THE STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT, V. JOHN B. COSTELLO AND ANN W. COSTELLO, HIS WIFE, ET AL., DEFENDANTS-APPELLANTS



On appeal from Superior Court, Law Division, Hudson County.

J.h. Coleman, Dreier and Landau. The opinion of the court was delivered by Landau, J.A.D.

Landau

These back-to-back appeals*fn1 arise from a condemnation action commenced by Jersey City Redevelopment Agency (JCRA)

against John B. Costello and Ann W. Costello (Costellos), owners of approximately 15.25 acres of property located on the Hudson River waterfront in Jersey City. The Costellos obtained a jury award in the amount of $6,750,000 from which JCRA now appeals.

Following the entry of that final judgment, allocation hearings were conducted to determine what portion of the condemnation award Newport Associates Development Company (Newport) was entitled to receive as assignee of Chicago Shippers Association's (CSA) leasehold interest in the subject property. The trial court determined that the value of Newport's leasehold interest was $2,360,000. The Costellos appeal and Newport cross-appeals from that determination.*fn2

The Costellos' property is located in an I-2 Intensive Industrial Zone, an area which permits a variety of uses, including office buildings, hotels, commercial development, shopping centers and truck terminals. Constructed upon this property was a truck/rail terminal, ancillary office building, and a pier sustaining a bulkhead capable of producing income from the rental of space to tie up vessels. In addition to using the terminal to conduct their business, U.S. Packing and Shipping, the Costellos also leased the facility to CSA, a freight consolidator.

CSA negotiated a twenty-year lease with the Costellos which commenced on February 17, 1978. Rent was fixed significantly below market value in light of a mutually beneficial agreement related to their freight businesses whereby CSA provided the Costellos with the capital to purchase the subject property, while the Costellos were to have the burdens, risks and benefits of ownership.

In July of 1981, JCRA, which was engaged in rehabilitation, reconstruction and clearance of slum and blighted areas in Jersey City, entered into a redevelopment contract with Newport

pursuant to N.J.S.A. 40:55C-1, et seq., and in accordance with the statute designated Newport as its exclusive redeveloper of the "Harbourside Redevelopment Plan." Pursuant to the terms of the Agreement, Newport was empowered to negotiate with owners of properties within the area so as to effectuate acquisition and avoid litigation. In the event negotiations proved unsuccessful, Newport was to notify JCRA and request that condemnation proceedings be instituted. In the event of condemnation, the Agreement required Newport to pay as the purchase price for any such property all costs of acquisition and relocation.

In 1981, the Costellos were notified by JCRA and thereafter by the Glimcher Company*fn3 that their property was the subject of a redevelopment project. Pursuant to the terms of its Agreement with JCRA, the redeveloper sought to negotiate a purchase of Costellos' property. The negotiations were not successful, and an N.J.S.A. 20:3-6 condemnation proceeding commenced. As a result thereof, the Costellos began negotiations with CSA to purchase its leasehold interest in the subject property. In this regard, the Costellos contend that the parties drafted an agreement whereby CSA would receive between $1,000,000 and $1,450,000, depending upon the amount of the condemnation award.

In June of 1985, Newport began its own direct discussions with CSA, either seeking to satisfy its obligation to conduct negotiations as JCRA's redeveloper, or possibly, as the Costellos allege, to destroy the deal they formulated with CSA. As a result of these negotiations, Newport purchased a lease assignment from CSA for $1,250,000.

On March 8, 1985, JCRA commenced condemnation proceedings against the Costellos' property pursuant to the "Eminent Domain Act of 1971," N.J.S.A. 20:3-1, et seq. Condemnation

commissioners were appointed and upon conclusion of their hearing, determined the fair market value of the property was $3,200,000. The Costellos appealed this determination to the Superior Court, and JCRA cross-appealed.

A key issue presented to the trial court concerned the highest and best use of the subject property for the purpose of determining fair market value as of March 8, 1985. In this regard, JCRA's expert, William Stack (Stack) testified that the property's highest and best use was as a truck terminal. In support of his opinion, Stack noted: 1) there was practically no commercial or residential development of the surrounding area as evidenced by an adjacent tugboat repair facility, as well as a number of parcels of land devoted primarily to industrial, warehousing and transportation-related uses; and 2) vehicular access to the property was compatible only with the property's existing use. Utilizing the sales comparison and income capitalization approaches, Stack ...


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