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Casino Reinvestment Development Authority v. Lustgarten

July 05, 2000


Before Judges Havey, Keefe, and Collester.

The opinion of the court was delivered by: Keefe, J.A.D.


Argued: April 3, 2000

On appeal from Superior Court of New Jersey, Law Division, Atlantic County.

Plaintiff, the Casino Reinvestment Development Authority, condemned 2020-22 Baltic Avenue, Atlantic City ("the Property"), owned by defendants Kenneth J. Lustgarten, Robert B. Wolf, Scott Lustgarten, Kenneth Kaiserman, Ronald Kaiserman, Constance Kaiserman Robinson, Donald A. Fuhrman, Rose C. Fuhrman, and Melvin L. Fuhrman. A jury determined the fair market value of the Property was $3,132,000.

Plaintiff contends on appeal that the judge erred in: (1) admitting the testimony of defendants' appraisal expert, Jon P. Brody; (2) admitting Brody's comparable sales; (3) excluding the report of plaintiff's expert, Angelo V. Stambules, on the economic feasibility of a hotel; (4) failing to properly instruct the jury on highest and best use; (5) refusing to allow it to serve upon defendants the supplemental report of its expert appraiser, Henry J. Mancini; (6) preventing plaintiff's other appraiser, Thomas P. Welsh, from testifying as to the highest and best use of the Property; and (7) putting unwarranted limitations on plaintiff's cross-examination of Brody. Further, plaintiff claims that (8) defendants' counsel made certain improper comments that prejudiced plaintiff's right to a fair trial. Finally, plaintiff claims that the trial judge erred in (9) preventing Welsh from testifying as a rebuttal witness. We conclude that the trial judge committed reversible error with respect to the last issue. Accordingly, we reverse the judgment under review and remand for a new trial. Nonetheless, we have discussed the other issues presented by plaintiff since our discussion will be of assistance to the trial judge on remand. *fn1

The facts can be briefly stated for the purpose of this opinion. The Property, in the 2000 block of Baltic Avenue, is a level, vacant lot with 240 feet frontage along Baltic and 150 feet deep; it is Block 148, lots 2, 3, and 66, on the tax map of Atlantic City. The Property is rectangular-shaped and approximately 36,000 square feet or .83 acres. The only improvement to the Property is older concrete and asphalt paving from a prior use. Close to the Property is the Atlantic Plate Glass building, *fn2 a boarded-up clothing factory, and a fast-food restaurant, the Philly Steakhouse. The immediate neighborhood is predominantly light industrial.

The Property is within a block of the Atlantic City Convention Center, which the New Jersey Sports Exposition Authority received permission to develop in January 1992. Eleven months later, plaintiff declared its intention to condemn property in the nine blocks between the Convention Center and the Boardwalk, an area dubbed the "Corridor." The Property is within the Corridor. The construction on the Convention Center began in 1993 and as of June 30, 1995, the relevant appraisal date, construction was well-under way. The Convention Center was completed at the time of trial at an approximate cost of $258 million. The Convention Center, located on Kirkman Boulevard, has 500,000 square feet (11.5 acres) of contiguous exhibit space.

Plaintiff's expert, Henry J. Mancini, estimated that the Convention Center will generate $447 million in economic benefit to the city annually. He stated that current projections indicate that 500,000 to 750,000 people a year will visit the Convention Center. In Mancini's opinion, the Convention Center business primarily has a positive impact on the hotel, retail, and food industries. The Property is in the central business district zone ("CBD"), which is predominately a commercial zone that permits a wide variety of uses, including retail businesses, office buildings, hotels, and service parking lots.

Mancini testified that as of June 30, 1995, the fair market value of the Property was $32 per square foot, or a total value of $1,119,000 adjusted for removal of the existing concrete and asphalt. He included the impact of the Convention Center in forming his opinion as to the value of the Property. Mancini stated that on the valuation date, the Atlantic City real estate market was flat, with little in the way of private development, except for some casino expansion projects. The only development in the Corridor area was the construction of a bus parking lot in the mid-1980's at Michigan and Atlantic Avenues.

Mancini determined that, because the zoning affecting the Property is CBD, it is suitable for most commercial uses. The physical characteristics of the Property make it appropriate for a wide variety of commercial development: it is large, almost an acre; has sufficient footage on Baltic Avenue; and sufficient depth. As to financial feasibility, the Property is located on Baltic Avenue, which has a high traffic level and feeds into the Atlantic City Expressway. Also, it is located one block from the Convention Center. Finally, Mancini concluded: "So my ultimate highest and best use conclusion was a use which is legally permitted, physically possible, financially feasible, and maximally productive for this site and that use would be generally a use which is permitted by zoning and would be classified as a retail or service-oriented use." Mancini used four comparable sales to support his opinion as to the value of the Property.

Defendants offered the testimony of Jon P. Brody as an expert in the field of real estate appraisal. Brody testified that the dominant feature of the area is the Convention Center, which must be taken into account in valuing the Property. Brody considered the Property to be a large parcel in the CBD zone, which allows the greatest variety of potential uses and a building elevation of up to 220 feet. He concluded that the highest and best conforming use is as an assemblage parcel, which takes advantage of the proximity to the Convention Center, casinos, and the Boardwalk. This highest and best use, however, did not require that the Property be assembled with some other property; it could be used on its own or assembled with other property for development. He decided that the way to value the property is through the market approach. He used six comparable sales to support his opinion that the Property had a value of $90 per square foot or $3,240,000. Unlike Mancini, however, Brody made no adjustments to his comparable sales. This was one of the many controversies that arose at trial.

The jury verdict of $3,132,000 represented a value of $87 per square foot: $55 per square foot more than plaintiff's estimate and $3 less than defendants' estimate.


Plaintiff contends that the judge erred in refusing to grant a pretrial hearing on the admissibility of the testimony of defendants' appraiser, Brody, or in refusing to exclude or strike Brody's testimony regarding the highest and best use of the Property. These contentions are grounded in plaintiff's core argument that Brody's appraisal assumes that the Property can be assembled into a larger parcel even though there is no reasonable probability that the Property can be assembled with other properties.

The most thorough explanation of why these motions were denied was given by the trial judge after he refused to strike a portion of Brody's testimony:

The second application asks me to determine that the jury should not have heard anything with respect to assembly because there's no reasonable probability that this property will be assembled.

The line of cases and the theory on which we're talking is essentially the line of cases that says the jury can't be instructed with respect to value attached to property as a result of a zoning variance unless it can be shown there's a reasonable probability that that zoning variance will be taken into account or will occur. But what we're really aiming for is what buyers and sellers in the marketplace will consider.

Here this value assigned to this property was not given to it on a condition that it be assembled. It was taken from direct sales comparisons with other properties and from those direct comparisons a value for this property was developed.

It's not necessary that this property be assembled for this value to occur. In fact some of the properties that were taken were similar in size with a similar value. There were properties that were part of assemblies that were used to compare this property, but that goes to the comps. It doesn't go to the question as to whether this property would have a premium if it were assembled .

We agree with the trial judge. Plaintiff's argument is flawed because Brody's valuation did not depend on the contingency of the Property being assembled. Initially, Brody testified that the highest and best use of the Property was "as an assemblage parcel taking advantage of the proximity, the location of that property, to both the Convention Center and to the casinos and Boardwalk." But later in his testimony he clarified his position. When asked whether the highest and best use of the Property depended on assembling it with other properties, Brody answered:

No, it does not, sir, but of course it makes sense, it makes logic, although the subject is 36,000 square feet, it certainly could stand on its own as an assemblage parcel or as a parcel that could be assembled, so there are two distinct concepts, but it certainly could go in either direction from the standpoint of me arriving at a value for that particular property.

Brody's method of valuing the property bears out his contention that his estimation of fair market value did not depend on the Property being assembled. Brody used the market method of valuation, comparing the Property to six other sales of property in Atlantic City. Most of the comparison sales were of parcels of land far smaller than the Property (only sale number two, when aggregated, was larger) and half of the comparables (except sales one, two, and three) were not bought as part of an assemblage scheme. Hence, the size of the Property and the probability of it being assembled was not crucial to Brody's estimate of its value. Further, Brody testified explicitly that the size of a parcel in Atlantic City is a far less important determinant of price than its location. He considered the Property to be in a strategic location because it is within a block of the new Convention Center and just as good as the comparable sales.

In any event, the size of the property, approximately 36,000 square feet, was more than enough land to support development for permissible uses in the zone. The usefulness of the Property in connection with an assembly with other land was merely one factor any buyer or seller would consider. Plaintiff's appraiser, Mancini, acknowledged the concept of assemblage when he undertook the evaluation of neighboring property. Indeed, his initial evaluation of the neighboring property considered its highest and best use as an assemblage for future development as any of the permitted uses in the zone. Thus, the testimony of plaintiff's own expert gave credence to the reasonableness of assemblage as a consideration by a willing buyer in the Corridor area. Finally, the gate-keeping role that the courts performed in such cases as State v. Caoili, 135 N.J. 252, 262 (1994); State v. Gorga, 26 N.J. 113, 116 (1958); and Jersey City Redev. Auth. v. Mack Properties Co., 280 N.J. Super. 553, 563-64 (App. Div. 1995), was unnecessary here because Brody's highest and best use did not depend upon overcoming some development or zoning impediment.

In sum, plaintiff's argument that it was entitled to a pretrial hearing on the admissibility of Brody's testimony or that Brody's testimony should have been excluded or stricken because it depended on a ...

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