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University Plaza Realty Corp. v. City of Hackensack

Decided: May 5, 1993.

UNIVERSITY PLAZA REALTY CORP., PLAINTIFF-RESPONDENT,
v.
CITY OF HACKENSACK, DEFENDANT-APPELLANT



On appeal from the Tax Court of New Jersey whose decision is reported at 12 N.J. Tax 354 (Tax 1992).

King, Brody and Landau. The opinion of the court was delivered by Landau, J.A.D.

Landau

The City of Hackensack appeals from a judgment of the Tax Court which ordered substantial reductions in 1988, 1989 and 1990 real property assessments on the land, building and improvements constituting a commercial office building known as One University Plaza owned by University Plaza Realty Corporation (University Plaza). University Plaza's cross-appeal has not been pursued.

The principal issues raised by the City concern the propriety, method and effect of considering the impact of asbestos contamination in determining true market value of One University Plaza. The opinion of Judge Crabtree which supports the Tax Court judgment, University Plaza Realty Corp. v. City of Hackensack, 12 N.J. Tax. 354 (Tax 1992), took notice of health hazards presented by the widespread presence of aging asbestos insulation and fire retardant materials in the office building.*fn1 Proofs provided by University Plaza and accepted by the Tax Court Judge tended to show that it had embarked upon a voluntary ten-year $4,000,000 asbestos decontamination program not compelled by state or federal regulation, and that existence of the material asbestos problems had significantly affected lease negotiations, vacancy rates and thus, market value.

The Tax Court found that no investor would purchase this property on the valuation dates without taking into account costs to cure, and it used remaining cure costs as a measure of the consequent reduction in building value. Although it recognized the Supreme Court's opinion in Inmar Associates Inc. v. Borough of Carlstadt and GAF Corporation v. Borough of Bound Brook, 112 N.J. 593, 549 A.2d 38 (1988), the Tax Court here concluded that the absence of government mandated remediation, i.e., the "regulatory neutrality" of this case, presented a markedly different

valuation picture from those cases.*fn2 We affirm.

In Inmar, the Court speculated that,

[b]y imposing on current and past owners and users of land the cost of restoring the land, the regulatory programs perhaps have shifted costs but not values. Had government remained indifferent to the problem, it might better be argued, as Inmar contends, that the land is indeed worthless . . . .

[112 N.J. at 601, 549 A.2d 38]

The Tax Court Judge utilized a capitalization of net income approach which accepted a 10% capitalization rate plus the effective tax rates in each of the tax years, and applied the resulting cap rates to the declining net operating income he projected for 1988, 1989 and 1990. The income figures used for the three assessment years reflected an allowance for the effect upon long term stabilized vacancy rates of a higher than normal vacancy rate (9%) attributed to the asbestos problem, but projected its decline as the remediation progressed. The Judge then subtracted from the market price achieved by use of his capitalization approach (1988 -- $13,039,000; 1989 -- $12,438,713; $1990 -- $11,702,871), an amount which, for each year, reflected the assumed remaining cost-to-cure impact upon market price. Thus, $4,000,000 was deducted for 1988; $3,600,000 for 1989; and $3,200,000 for 1990.

This valuation approach produced a true value of $9,039,000 for 1988, a revaluation year in Hackensack, and by application of the chapter 123*fn3 average ratio ...


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