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Livingston Mall Corp. v. Livingston Township

April 1, 1996

LIVINGSTON MALL CORP., PLAINTIFF,
v.
LIVINGSTON TOWNSHIP, DEFENDANT



The opinion of the court was delivered by: Crabtree

The anchor stores are all owner-occupied, except that plaintiff owns the land and leases it to the anchor stores.

The mall building is situated on 59.6 acres of land.

The entire land area, except for the area occupied by the mall building, is a parking area with 5,499 parking spaces. In addition, the mall enjoys an easement over 9.54 acres owned by Public Service Electric and Gas (PSE&G). This acreage lies between the mall land and Eisenhower Parkway. The easement provides for ingress and egress from the highway; it also provides additional parking, driveways, lighting, telephone conduits, a storm and sewer drainage system, and public utility lines for water, sewer, gas, electric and telephone lines. The mall could not function without the easement.

The mall area occupied by the Lord & Taylor anchor store was previously occupied by a Hahne's anchor store. The latter closed its doors in 1989, and the area theretofore occupied by Hahne's was closed while renovations were made to permit occupancy by Lord & Taylor. This renovation continued throughout 1989.

Extensive renovations were also made to the mall in 1991.

There are thirteen kiosks, eight of them permanent, five seasonal. All kiosks are on rollers. They occupy space in the middle of the mall concourse during business hours; at the close of each business day they are rolled into secure storage areas. The kiosk operators pay rent to the mall owner for the kiosks and for the space in the mall concourse which the kiosks occupy.

The mall was built in 1971 or 1972, and, as indicated above, it was substantially renovated in 1989 and 1991. Some of the mall store tenants were in continuous occupancy from the inception of the mall up to and including the valuation dates for the years under review.

At all times pertinent hereto, occupancy of the retail mall stores was governed by overage leases, which called for a minimum rent, with additional rent payable as a percentage of sales in excess of a stated sales volume.

The highest and best use of the subject property is a continuation of its present use as a super-regional mall.

Plaintiff's expert estimated the true value of the subject property to be $92,350,000, for all years under review. In arriving at this estimate he utilized the cost and income approaches to value, placing primary reliance upon the latter. His cost approach produced a value estimate of $90,951,800, developed in the following manner:

Land 60 acres [at]$325,000/acre $19,500,000

Improvements

R.H.Macy

255,060 sf [at]$60/sf $15,303,360

Entrepreneurial

Profit 10% 1,530,360

Total $16,833,960

Depreciation 20% 3,366,792

Net $13,467,168 say $13,467,200

Sears

191,921 sf [at]$55/sf $10,555,655

Entrepreneurial

Profit 10% 1,055,565

Total $11,611,220

Depreciation 20% 2,322,244

Net $9,288,976 say $9,289,000

Lord & Taylor

169,921 sf [at]$55/sf $11,163,636

Entrepeneurial

Profit 10% 1,116,363

Total $12,279,999

Depreciation 10% $1,227,999

Net $11,052,000 say $11,052,000

Mall

528,572 sf [at]$65/sf $34,357,180

Entrepreneurial

Profit 10% 3,435,718

Total $37,792,898

Depreciation 10% $3,779,289

Net $34,013,608 say $34,013,600

Site Improvements

5,500 spaces [at]$750/space

(Equiv. to $2.06/sf for

2,000,000 sf) $4,125,000

Entrepreneurial

Profit 10% 412,500

Total $4,537,500

Depreciation 20% $1,907,500

Net $3,630,000 say $3.360.000

Total Value under

cost approach $90,951,800

The expert claimed that there were no comparable vacant land sales, so he used the equalized value of the land assessment as the land value under the cost approach.

In developing the value estimate for the improvements, he referred to the computerized Marshall Valuation Service. He did not rely upon the Marshall book. He selected a building classification of Class C for all the improvements. He chose different cost ranks for the components: 3.5 Above Average/High for the mall area (stores and concourse), 2.5 Average/Above Average for Macy's, 2.0 Average for Sears and 3.0 Above Average for Lord & Taylor. He selected an observed condition of Good for all components. He selected only one valuation date (October 1,1991). In addition to the selections of building classification, cost rank and observed physical condition, the expert supplied the Marshall computer with all relevant data including size, height, sprinklers, elevators and geographic location. The computerized Marshall service then calculated the unit cost for each component. Such cost, according to Section 1, page 4 of the Marshall Valuation Service (the book manual) included architect's and engineer's fees, construction period interest, sales taxes on materials, site preparation, utilities from structure to lot line and contractor's overhead and profit. These computer-generated calculations resulted in the following costs per square foot:

Mall stores and concourse $64.66

Macy's $58.82

Sear's $53.42

Lord & Taylor $65.43

In estimating depreciation, the expert assumed a 50-year life for the mall and assigned an effective age of 10 years to Macy's and Sears, resulting in accrued depreciation of 20% for those two anchors. Because of the renovations made in the mall and in the Lord & Taylor store, the expert posited accrued depreciation of 10% for those components.

The expert offered no support for his site improvement estimates except to observe that the cost data came from Marshall.

The expert attributed no value to plaintiff's easement over land owned by PSE&G; nor did he take into account the cost-based value of tenant improvements.

The expert's income approach can be summarized in tabular form as follows:

Mall stores $5,500,000

Less 10% landlord

contingencies 550,000

Total $4,950,000

Kiosks

8 [at]$1,300/month $124,800

5 [at]$11,000/season 55,000

Total $179,800

Less 30% landlord

expenses $53,940

Total $125,860

Anchor Stores

616,128 [at]$6.00/sf $3,696,768

Total net income $8,772,628

$8,772,628 capitalized [at]9.5%

$92,343,452 SAY $92,350,000

The expert relied upon the contract rents from all leases of mall stores as economic rent, even though many of the leases were executed as long ago as 1971 and 1972. *fn3 He purported to verify his Conclusions in this regard by calculating the percentage rent applicable to each lease, applying the percentage to the entire sales volume and not just to the overage. He did not posit a vacancy and loss allowance but merely indicated the total square feet of vacant space, pointing out that, on the valuation dates for the first two years, the vacant space amounted to approximately 6% of the total leasable area of the mall stores.

He claimed that the rents as a percentage of sales supported his Conclusion that contract rents were economic rents and that the age of the leases did not matter, as the contract percentage level was the same in 1971-1972 as it was on the valuation dates.

The expert submitted no lease data for tax year 1993.

Relying on percentage rent provisions contained in leases for Macy's store in Paramus, a Stern's store in Jersey City's Newport Center Mall, and a survey of some 45 anchor department stores nationwide, plaintiff's expert posited economic rent for Macy's and Sears at 2.5% of gross sales and 3.5% for Lord & Taylor. Utilizing information in his possession concerning the annual sales volume of those anchors, he projected economic rents of $5.68 per square foot for Macy's, $4.10 per square foot for Sears and $5.79 per square foot for Lord & Taylor. He then converted these rentals to a uniform $6.00 per square foot for all three anchor stores.

Plaintiff's expert made no allowance for common area maintenance charges (CAM) paid by the mall tenants, nor did he consider what the leases termed "administrative charges" payable by the mall tenants. Similarly, his gross income projections ...


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