April 21, 1997
LAWRENCE RUSSO, JR., PLAINTIFF,
BOROUGH OF CARLSTADT, DEFENDANT.
The opinion of the court was delivered by: Kahn
While both parties utilized the comparable sales valuation approach, they differ in their determination of highest and best use. The highest and best use analysis recognizes the most profitable, competitive use to which a property can be put. E.E. Mori v. Town of Secaucus, 15 N.J. Tax 607, 618 (Tax Ct. 1996) citing Appraisal Institute, The Appraisal of Real Estate, 275 (10ed. 1992). This court has repeatedly relied on Ford Motor Co. v. Edison Township, 10 N.J. Tax 153, aff'd o.b. per curiam, 12 N.J. Tax. 244 (App. Div. 1990), aff'd 127 N.J. 290 (1992), for the criteria used to determine the highest and best use of property. In that case Judge Andrew held "in order for a particular use to be the highest and best it must be: 1) legally permitted, 2) physically possible, 3) economically feasible, and 4) the most profitable". Ford Motor Co., at 161 (citations omitted).
The subject property is controlled by the zoning jurisdiction of the Hackensack Meadowlands Development Commission (HMDC) and is zoned for Light Industrial and Distribution "A" development. Municipal zoning is preempted by the HMDC. N.J.S.A. 13:17-11. The HMDC zoning allows the construction of warehouse, distribution and or other light manufacturing facilities. Taxpayer, an established real estate developer in the Hackensack Meadowlands District, contends that various restrictions placed upon the filling of the property during the valuation dates in question rendered the property undevelopable and, as such, the highest and best use of the property was for wetlands or for conservation. The municipality argued otherwise, based primarily on the fact that in March, 1996, subsequent to the last of the relevant assessment dates (10/01/95), taxpayer received permission to fill the property.
Taxpayer contracted to purchase lots 9.01 and 9.02 in January 1985. These two lots have been, for purposes of this appeal, considered as one parcel and referred to as the "13.5 acre parcel". This lot is adjacent to a 44 acre parcel he owned at that time. Lot 9.0, a 5.949 acre parcel, purchased at approximately the same time as the 13.5 acre parcel, is triangular in shape and abuts the easterly boundary of the 13.5 parcel and has been referred to, for purposes of this appeal, as the "6 acre parcel". Prior to title closing on the subject property, taxpayer began to fill the 13.5 acre parcel in preparation for intended light industrial development. His activity was halted when the United States Army Corps of Engineers (ACE) received an anonymous telephone call reporting illegal filling. On March 25, 1985 taxpayer was notified that the property was protected wetlands under the Federal Clean Water Act (CWA). An oral cease and desist order was imposed on future filling. *fn1 The entire 13.5 acre parcel was determined to be "navigable waters" subject to authority of the ACE under Section 10 of the Rivers and Harbors Act, 33 U.S.C. No other filling was performed on the property until March 1996 when a fill permit was issued. The entire 6 acre parcel is also considered "navigable waters" under Section 10 of the River and Harbors Act.
During all relevant valuation dates, both the 13.5 acre parcel and the 6 acre parcel consisted primarily of wetlands. Wetlands are defined by the United States Environmental Protection Agency (USEPA) regulations as "areas that are inundated or saturated by surface or ground water at a frequency and duration sufficient to support, and that under normal circumstances do support, a prevalence of vegetation typically adapted for life in saturated soil conditions". 40 C.F.R. § 230.41(a). Taxpayer offered the testimony of Mr. George Cascino as an expert on wetland delineation and verification. Mr. Cascino testified as to various characteristics of the subject property which he then classified as mostly wetlands. Defendant did not dispute or contradict this characterization. Taxpayer also offered into evidence an April 15, 1992 jurisdiction ruling by the ACE which delineated the existence of wetlands on the 13.5 acre parcel.
The wetlands on both the 13.5 acre parcel and the 6 acre parcel were designated as being generally unsuitable for fill and development by the Advanced Identification Project (AVID). AVID was carried out under the supervisory control of the USEPA as a combined effort of the HMDC, USEPA, the ACE and other state and federal agencies. Mr. Cascino testified that AVID's designation of the subject property as being "generally unsuitable" for future development made it unlikely that any proposed filling and development would comply with Section 404 of the CWA or that any permits would be issued for filling and development. Under Section 404 of the CWA, a permit from the ACE is required prior to any filling or development of property governed by the CWA.
The subject property has been involved in various litigation and permit proceedings prior to and throughout all relevant valuation dates. Taxpayer submitted two voluminous binders of memoranda and correspondence dealing with the permit proceedings throughout the valuation dates at issue. It is imperative that this court examine the history of the permit proceedings before and during the relevant valuation period in order to develop any Conclusion regarding the developability of the subject property.
After the ACE issued a formal cease and desist order preventing the resumption of filling the 13.5 acre parcel in 1985, taxpayer continually attempted to obtain the necessary fill permits. Taxpayer introduced a letter from the ACE dated March 23, 1987, which consisted of a notice of intent to issue a permit, which would have allowed him to continue filling the property. Both the USEPA and United States Fish and Wildlife Service (FWS) objected to the ACE's notice of intent letter.
On January 19, 1988 the USEPA recommended a Section 404 veto under the CWA so to prevent the remaining portion of the 13.5 acre parcel from being filled. The USEPA recommendation described both the 13.5 acre parcel and the 6 acre parcel as being of unique significance to the Hackensack Meadowland District. As such, the parcels should be preserved in their natural state. The official USEPA veto under the CWA was issued on March 21, 1988. The 13.5 acre parcel received the first veto ever issued in New Jersey under Section 404(c) of the CWA. The veto precluded development of the parcel by preventing the ACE from issuing a fill permit. Taxpayer appealed the veto in the Federal District Court along with other issues involving the 44 acre adjoining the subject parcels owned by Mr. Russo. The District Court remanded his claims to the ACE for reconsideration of the permit application for the 13.5 acre parcel.
Valuation Date: October 1, 1992
After further consideration during April 1992, the ACE determined that a 3.27 acre portion of the 13.5 acre parcel was uplands prior to the taxpayer's filling activity during 1985, the remainder of the property was subject to Section 404 of the CWA and the USEPA's veto. Also, the ACE established various requirements which would be required to be satisfied prior to any future consideration of fill applications. Taxpayer again instituted litigation in the Federal District Court against ACE and the USEPA in June 1992 seeking review of the ACE's April 1992 determination.
Defendant stipulated at trial that Mr. Russo could testify as an expert with respect to development of property within the Hackensack Meadowland District. The taxpayer contends that any development of the 3.27 acres the ACE determined to be upland would be impractical for commercial, light industrial purposes. This court finds his undisputed testimony to be reliable. As of the October 1, 1992 assessment date, taxpayer had not obtained the necessary permit to continue filling the property and develop it, nor was it known when or if he would ever obtain the necessary permits.
Valuation Date: October 1, 1993
The District Court granted partial summary judgment to the ACE in December 1992, however, the remaining claims were used by the taxpayer as, what he termed, a "wedge" compelling further negotiations amongst the parties throughout 1993. In January 1993, taxpayer embarked on a series of negotiations with the USEPA and ACE after which he was informed that he would have to reapply for fill permits pursuant to those negotiations. The record reveals that taxpayer sent a letter to the ACE on January 22, 1993 responding to all of the ACE's requirements necessary for the lifting of the USEPA's veto and the filling and developing the property, however, no permits were forthcoming.
Also during this period, Mr. Russo instituted a claim in the United States Court of Federal Claims for compensation in excess of $10,000,000 claiming there was a temporary taking of the subject property by the federal government through its delayed rulings regarding the issuance of fill and development permits. During negotiations with the government agencies throughout 1993, the USEPA proposed a "global settlement" of all issues concerning Mr. Russo's various properties. He had delayed pursuing the Court of Federal Claims action in order to continue settlement negotiations concerning the proposed global settlement. During September 1993, taxpayer and the federal agencies had a proposed, an oral settlement agreed upon which, in essence, would allow the taxpayer to continue with the development of the subject property. However, this development was conditioned upon the taxpayer obtaining all permits from all federal and state agencies as well as requiring Mr. Russo to deed title and fund mitigation *fn2 costs for property he owned in Ridgefield, New Jersey to the HMDC's Mitigation Bank or other organization designated by the ACE. It was undisputed at trial that the value of the property in Ridgefield exceeded $1,000,000.
The negotiations between taxpayer and the government agencies soon broke down again. There was no written settlement agreement as of October 1, 1993 and taxpayer was no closer to receiving development permits than he was in October 1, 1992. It is unreasonable to believe, as the municipality would have this court do, that someone other than Mr. Russo could have received the permits and would view the subject property as "developable" as of this date. The municipality's appraisal expert suggests that a reasonable purchaser would believe that the property at issue was developable at this time. Neither party introduced any evidence suggesting that: A) the necessary permits would be issued, B) that the land could be developed as of 10/01/93 or C) that a reasonable purchaser would believe this property, still subject to the rare USEPA veto under Section 404 of the CWA, would ever be permitted to be filled and developed. The fact that there were settlement negotiations during September, 1993 is of no consequence. No reliable evidence was provided that could persuade this court to find that the granting of permits allowing development of the property was close at hand.
Valuation Date: October 1, 1994
In February 1994, Mr. Russo, not foreseeing successful settlement of the development problems, indicated to the USEPA and the ACE that he would reinstate his complaint in the Court of Federal Claims. Taxpayer submitted into evidence the U.S. Attorney's agenda for a proposed settlement meeting on February 14, 1994. That agenda stipulated that permits under Section 10 of the River and Harbors Act and Section 404 of the CWA would take "1-2 years to issue", if the USEPA veto was to be lifted. Needless to say, no reasonable developer could think development of the property was inevitable since development was based upon the lifting of the veto.
The record reveals that in April 1994, Mr. Russo and various federal agencies entered into settlement negotiations which again failed. In May 1994, taxpayer notified the ACE and relevant government agencies that if a settlement was not agreed upon prior to June 15, 1994, the Water Quality Certification waiver he had been obtained years prior from the New Jersey Department of Environment (NJDEP) would expire. The Water Quality Certificate waiver taxpayer had obtained from the NJDEP was due to expire on December 31, 1994. It is undisputed that the NJDEP had previously made taxpayer aware that it would not issue another waiver if the taxpayer did not receive the necessary federal fill permits from the USEPA and the ACE.
As of October 1, 1994 taxpayer had not reached any settlement with the USEPA or the ACE. Mr. Russo, along with his expert witnesses, testified that no reasonably knowledgeable purchaser would have any reason to believe that any significant portion of the subject property could ever be developed or used for purposes other than conservation or possible mitigation. In fact, at the 1994 valuation date, it was reasonable to expect that the property would not be able to be developed because the Water Quality Certificate waiver was due to expire at the end of the year and there was no expectation at that time that the waiver would be renewed.
Valuation Date: October 1, 1995
In December 1994, two months after the 1994 valuation date, the New Jersey Permit Extension Act was signed into law. This act allowed the taxpayer's Water Quality Certificate waiver to continue beyond its scheduled expiration date. In March 1995, as a result of negotiations with Mr. Russo, the USEPA published a notice to reconsider the Section 404 veto which, if lifted, would have allowed the taxpayer to proceed with the filling of the 13.5 acre parcel. The FWS submitted strong opposition to the USEPA's published notice. The FWS urged that no additional filling be permitted on the subject site and that compensation should be paid by the property owner for previous filling at the site since the site was deemed to be ideal for unique vegetation and aquatic life germane to New Jersey wetlands. Also during this time, Mr. Russo received two letters from the NJDEP, which were admitted into evidence at trial. The first letter from the NJDEP, dated April 21, 1995, objected to the development of the property because of the potential loss of wetlands during development. The second letter, dated May 25, 1995, indicated that settlement of this matter would necessarily involve issues relating to the subject property as well as other issues relating to property owned by taxpayer in Ridgefield and that such a settlement would be beneficial to all parties involved.
On July 25, 1995 taxpayer requested that the ACE reconsider his previous permit application for public notice. Mr. Russo testified that he believed he was no closer to obtaining necessary permits at this moment than at any time prior. He had not received any response regarding the official status of the Section 404 veto and he had not reached a settlement agreement with any federal agency which would permit the filling and development of the subject property. He reactivated his Court of Federal Claims case which he had repeatedly delayed for settlement purposes. Mr. Russo testified that he believed it was the pending Court of Federal Claims action that persuaded the ACE to step up settlement negotiations.
On September 11, 1995 the USEPA officially reversed the Section 404 veto and allowed the ACE to reconsider taxpayer's fill permit application for the 13.5 acre parcel. Mr. Russo revised his fill permit application to include a small portion of the 6 acre parcel as well. Although the veto was lifted, the record disclosed that the taxpayer still needed to obtain another Water Quality Certificate and a Coastal Zone Management Plan Consistency Certificate from the NJDEP. Also, a mitigation plan for the HMDC would have to be approved by the ACE prior to any fill and development of the subject property.
As of October 1, 1995 taxpayer had not obtained the necessary permits and had not resolved his case pending in the Court of Federal Claims. Despite the USEPA's agreement to reconsider the Mr. Russo's fill application, he claims he was in actuality no better off than as of 10/01/94. This court agrees with the taxpayer on this issue. There was no offered from which this court could evaluate if or when permits were to be granted.
Post Valuation Activity
It wasn't until March 1996 that the problems frustrating the permit process for the subject property were finally overcome. The HMDC agreed to waive testing the property in Ridgefield and it was accepted as mitigation for filling of the subject property in Carlstadt. Taxpayer, on March 4, 1996, requested a thirty day adjournment of the Court of Federal Claims case in order to finalize settlement negotiations. Fill permits were issued and the property was finally ready for development on March 18, 1996. The Court of Federal Claims case was settled the following day. As of March 1996, taxpayer was permitted to fill all of remaining 13.5 acre parcel and a portion of the 6 acre parcel. Most of the 6 acre parcel was used for mitigation purposes which included wetland vegetation plantings and other modifications of the property as per the NJDEP. Although this activity occurred only six months after the 10/01/95 assessment dates, nothing significant occurred prior to 10/01/95 from which this court could conclude that taxpayer could on 10/01/95 have predicted the issuance of the necessary fill permit.
Expert Appraisal Reports
There is a clear difference between the appraisal experts analyses of the subject property. Although both utilize the sales comparison methodology, each appraiser works from a different premise. Taxpayer's appraisal expert essentially relied upon the report and recommendations of Mr. Cascino, who concluded that, as of the valuation dates, the property was undevelopable by reason of the inability to obtain the necessary fill / development permits.
Taxpayer's appraisal expert testified that at the time of each valuation date in question, the property was not developable in the foreseeable future. He based his report on that presumption. He concluded from his evaluation of the subject property that the highest and best use during the valuation dates at issue was open space or conservation.
The appraiser indicated personal familiarity with both the Hackensack Meadowland District (specifically the subject property) and the comparable sales utilized in his report. He discussed eight land sales valued between $2,100 and $4,600 per acre. The properties used were essentially the same properties used by the plaintiff in Bergen County Associates v. East Rutherford Bor., 12 N.J. Tax 399 (Tax Ct. 1992). In fact, the taxpayer's appraisal expert relied upon the Bergen County Associates case where the court found the weighted average of wetlands in the Berry's Creek Center District area was $3,500 per acre for tax year 1990. The witness discussed differences in the size and location of the areas and the current uses of these properties. Other comparable sales he used consist, for the most part, of wetlands. From this information, as well as the aforementioned assumptions based upon Mr. Cascino's analysis, taxpayer's expert appraisal witness recommended a value of $4,000 per acre or $78,000 for the entire 19.5 acres for each of the relevant years.
The municipality's expert appraisal witness concluded that while there were development restrictions during the relevant tax years, the property could clearly become developed within a reasonably calculated period of time. He based this opinion upon the fact that in March 1996 the taxpayer received a permit from the ACE to complete the filling of the property which renders the property developable. Clearly, however, additional permits and approvals such as building permits would be necessary to fully develop the property.
The municipality's appraisal expert also utilized a comparable sales approach in order to derive a value for the subject property on a per acre basis. His report, however, was based upon a determination that the highest and best use of the subject property is for future development of light industrial improvements. The witness then discussed eight comparable sales of land that would accommodate such uses; per acre sales prices ranged from $228,000 to $303,000. The witness made adjustments for size, location, time configuration, access, and concluded the subject property's value to be $275,000 per acre. These sales are utilized by the expert witness for all years in question as if the property was immediately developable.
Using the per acre value ($275,000), the witness determined, (primarily based upon the issuance of the fill permit in March 1996), that a four year time frame would be an appropriate holding period for the initial valuation year under appeal in this matter (10/01/92). Utilizing a reversion factor of 15% along with the aforementioned information, the appraisal expert determined that the discounted per acre value for the aggregated property for each of the four years in issue were as follows:
Tax Assessment Date Value per acre
The total value for all lots opined by the municipality's appraisal expert for each of the four years in issue are as follows:
Valuation Date Total
It is clear from the record that as of the relevant assessment dates, the subject property was mired in lawsuits with no reliable indication that any development approval was on the horizon. The record revealed meetings and memoranda which were usually inconsistent with one another. Conclusion of meetings were followed up by letters that failed to accurately memorialize any understanding as to the development of the property. Promised commitment continually fell through. Up to and including the most recent relevant assessment date (10/01/95), nothing existed from which this court could conclude that any chance fore development of the subject property existed.
The municipality's appraisal expert testified that the property is today being filled and developed; therefore by definition, the property was "developable" to its highest and best use as light industrial property for all relevant valuation dates. He implied that the permit denials were due to taxpayer's alleged violations with respect to other property he owned. Defendant claims that Mr. Russo's problems were the unique result of his unwillingness to withdraw his multimillion dollar condemnation claim in the Court of Federal Claims which was initiated after the first valuation date.
It has long been established that property must be valued in its actual condition on the date of assessment. City of Newark v. West Milford Twp., Passaic County, 9 N.J. 295, 303 (1952); University Plaza Realty Corp. v. City of Hackensack, 12 N.J. Tax 354, 370 (Tax Ct. 1992), aff'd 264 N.J. Super. 353 (App. Div.), certification denied, 134 N.J. 481 (1993). Facts or issues that become relevant regarding the issuance of fill permits issued after valuation dates should not be used to adjust valuation in this matter. This court's previous ruling in Inmar Associates, Inc. v. Borough of Carlstadt, 7 N.J. Tax 482, 490, (Tax Ct. 1988), held "valuation should be based on facts and circumstances known or knowable as of the assessment date, unaided by hindsight". See State v. Gorga, 26 N.J. 113 (1958); State by Com'r of Transp. v. Caoili, 135 N.J. 252 (1994).
It is the determination of this court that the municipality's expert appraisal report indeed values the property through hindsight in light of the granting of the necessary fill permits five months after the final valuation date in question. Post-assessment factors that are not reasonably foreseeable cannot be utilized since said factors were not available to the assessor. This is especially true when there was no indication that the possibility of such an occurrence could take place. There is nothing in the record which could give rise with any reasonable degree of accuracy as to a legitimate holding period, much less four years; thus, the keystone which the municipality's appraiser constructed his valuation approach must be eliminated leaving his remaining theory to crumble.
Since the municipality's appraisal expert did not offer comparables of the wetlands restriction, his analysis cannot be utilized in any fashion. Accordingly, this court finds that the taxpayer's appraisal expert witness has provided the court with the only reliable evidence of value.
For the foregoing reasons, this court finds per acre value for the subject property is $4,000 per acre. Therefore, the total value for the subject property as rounded to the closest half acre (19.5 acres) is $78,000.
Tax year 1993 was a revaluation year wherein Chapter 123 (N.J.S. 54:1-35 et seq.) is inapplicable. True value shall be the assessment which, as rounded by this court, is as follows:
Lot 9.0 Lot 9.01 Lot 9.02
Land $23,790.00 Land $31,890.00 Land $22,320.00
Improvements $0.00 Improvements $0.00 Improvements $0.00
Total $23,790.00 Total $31,890.00 Total $22,320.00
Total Aggregate Assessment: $78,000.00
With respect to the tax year 1994 (10/01/93) the average ratio was 87.27%. Chapter 123 is applicable. Id. Clearly, the ratio of assessment to true value is far above the upper limit of the common level range requiring relief for the taxpayer. Assessment for the 1994 tax year as rounded by this court is as follows:
Lot 9.0 Lot 9.01 Lot 9.02
Land $20,770.00 Land $27,830.00 Land $19,500.00
Improvements $0.00 Improvements $0.00 Improvements $0.00
Total $20,770.00 Total $27,830.00 Total $19,500.00
Total Aggregate Assessment: $68,100.00
With respect to the tax year 1995 (10/01/94) the average ratio was 87.70%. Chapter 123 is applicable. Id. Clearly, the ratio of assessment to true value is far above the upper limit of the common level range requiring relief for the taxpayer. Assessment for the 1995 tax year as rounded by this court is as follows:
Lot 9.0 Lot 9.01 Lot 9.02
Land $20,870.00 Land $27,970.00 Land $19,575.00
Improvements $0.00 Improvements $0.00 Improvements $0.00
Total $20,870.00 Total $27,970.00 Total $19,575.00
Total Aggregate Assessment: $68,415.00
With respect to the tax year 1996 (10/01/95) the average ratio was 87.57%. Chapter 123 is applicable. Id. Clearly, the ratio of assessment to true value is far above the upper limit of the common level range requiring relief for the taxpayer. Assessment for the 1996 tax year as rounded by this court is as follows:
Lot 9.0 Lot 9.01 Lot 9.02
Land $20,840.00 Land $27,930.00 Land $19,550.00
Improvements $0.00 Improvements $0.00 Improvements $0.00
Total $20,840.00 Total $27,930.00 Total $19,550.00
Total Aggregate Assessment: $68,320.00
Judgment to be entered in accordance with this opinion.