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Alpine Country Club v. Borough of Demarest

October 11, 2002


On appeal from the Tax Court of New Jersey, Docket Nos. 677-93, 688-93, 12495-93, 12496- 93, 12497-93, 12069-94, 4135-95, & 1561-96.

Before Judges Pressler, Wallace, Jr., and Axelrad.

The opinion of the court was delivered by: Axelrad, J.T.C. (temporarily assigned).


Argued: September 18, 2002

Defendants, Boroughs of Alpine and Demarest (municipalities), appeal, and plaintiff taxpayer, Alpine Country Club, cross-appeals, from the Tax Court's determination of value of an eighteen-hole golf course with improvements for the tax years l992 through l996. The 188-acre tract of land under appeal consists of one lot of 33 acres in the Borough of Alpine and three lots totaling 155 acres in the Borough of Demarest. Taxpayer had brought Tax Court complaints on three lots in Demarest and one lot in Alpine for tax years l992, l995, and l996, and for the Alpine lot in l994. Demarest had brought Tax Court complaints on the three Demarest lots for tax year l993.

Both experts agreed the property should be valued as a single entity, and the highest and best use of the entire parcel would be as a residential subdivision. Taxpayer's appraiser initially used the three traditional approaches to value, i.e. sales comparison, income capitalization, and cost, concluding the highest and best use of the property was as a golf course/country club. During trial he modified his highest and best use analysis and testified as to the discounted cash flow (DCF) subdivision development analysis. Municipalities' appraiser addressed all approaches but relied only on the subdivision approach to calculate the fair market value of the property, relying on our affirmance of this approach as an appropriate method for determining the valuation of a country club with the highest and best use as a residential subdivision in Tamburelli Properties Ass'n v Cresskill, 15 N.J. Tax 629 (Tax 1996), aff'd, 308 N.J. Super. 326 (App. Div. l998). *fn1 After a lengthy trial, the Tax Court reduced five property tax assessments and affirmed eleven.

Municipalities in a joint brief contend (1) the taxpayer's complaints should be dismissed for failure to present sufficient proof to overcome the presumption of correctness of the assessments; (2) the court's adoption of the "rule of thumb" formula proposed by an attorney-developer, a fact witness proffered by municipalities, resulted in erroneous fair market values; (3) the court erred in not accepting the method of valuation and conclusion of value of municipalities' appraiser; and (4) the taxpayer's complaints should have been dismissed for failure to present value based on accepted methods of appraisal. In the cross-appeal, taxpayer argues (1) the court erred in adopting and applying the "rule of thumb" formula and (2) the court failed to make adequate findings of fact.

In its October 25, 1999 bench opinion, the Tax Court found "that the sales used by [taxpayer's expert] in his sales comparison approach neither separately nor together produce a persuasive indication of the value for the subject." We note that "judges presiding in the Tax Court have special expertise; for that reason their findings will not be disturbed unless they are plainly arbitrary or there is a lack of substantial credible evidence to support them." Glenpointe Assoc. v. Township of Teaneck, 241 N.J. Super. 37, 46 (App. Div.), certif. denied, 122 N.J. 391 (1990). We affirm these findings and conclusion for the reasons articulated by the Tax Court in its detailed analysis of the sales comparison approach. We therefore conclude the assessments cannot be challenged on this basis.

We find the Tax Court erred, however, both procedurally and substantively, in adopting the "rule of thumb" formula espoused by the fact witness as the sole basis for determining the value of the subject property. We reverse and remand to the Tax Court for a determination of value without consideration of the fact witness' testimony as to the "rule of thumb" formula. If the court determines the expert testimony supports the use of the DCF subdivision development analysis as the appropriate approach to calculate the fair market value of this parcel, it shall follow the accepted components of that methodology as recognized by the appraisal community in its authoritative publication and by our courts, and determine true value. Appraisal Institute, The Appraisal of Real Estate 342-46 (12th ed. 2001); Tamburelli, supra, 308 N.J. Super. at 333-34; Genola Ventures-Shrewsbury v. Shrewsbury, 2 N.J. Tax 541 (Tax l981). If, however, the Tax Court determines the proofs are insufficient to find value because there is a lack of factual foundation for one or more of the assumptions utilized by the experts in their DCF analysis and neither party has submitted reliable evidence for purposes of establishing true value, the court shall affirm the assessments, as did Judge Andrew in Genola Ventures, supra, 2 N.J. Tax at 556. The court may accept such supplemental certifications or testimony as it deems appropriate.

In his opinion the judge correctly articulated the nature of the subdivision development analysis, i.e., "an application of discounted cash flow analysis in which revenues and expenses together with an allowance for profit are projected over a development period and then discounted back to a valuation date to arrive at a value estimate for undeveloped land," referencing the methodology as described in greater detail in the Appraisal of Real Estate, Eleventh Edition, and the Genola and Tamburelli cases. Under the traditional subdivision development analysis, as set forth in Genola, and which we affirmed in Tamburelli, the appraiser undertakes the following steps:

(1) based on a review of zoning ordinances, comparable subdivision maps and information, and preliminary development plans or other engineering studies for the hypothetical subject subdivision, determines the number and size of lots that can be created physically, legally, and economically;

(2) projects the probable gross sales price for the lots and multiplies that value times the number of lots;

(3) estimates the development costs, which include engineering fees, streets and utilities, and ...

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