December 14, 2007
ELIZABETH CENTER APARTMENTS, URBAN RENEWAL CORP., PLAINTIFF-APPELLANT,
ELIZABETH CITY, DEFENDANT-RESPONDENT.
On appeal from the Tax Court of New Jersey, 003676-03.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted December 3, 2007
Before Judges Lintner and Graves.
This appeal arises from a decision in which the Tax Court affirmed the City of Elizabeth's (City) tax assessment for the years 2003, 2004, and 2005 of property consisting of a complex of four buildings owned by Elizabeth Center Apartments Urban Renewal Corporation (Center), a not-for-profit corporation operating under the auspices of the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD). The buildings consist of a total of 260 lowand moderate-income co-operative apartments. The Tax Court judge found that the sales approach taken by the Center was inappropriate as it failed to take into account comparables from similarly situated properties.
Notwithstanding his criticism of the Center's expert's application of the sales approach method, the judge concluded that the Center did not overcome the presumption of correctness for municipal assessments set forth in Pantasote Co. v. City of Passaic, 100 N.J. 408, 412-13 (1985), because it failed to provide evidence that the City's Tax Assessor neglected to consider the sales restriction affecting resale of the cooperative apartments. We affirm.
The Center's complex is located at 735-821 Pearl Street in Elizabeth. It was erected in 1967-68. The four buildings occupy 4.65 acres and contain a total of 30 three-bedroom units, 82 two-bedroom units, and 148 one-bedroom units. The units are required to be owner-occupied and must be sold to people of low or moderate income as defined by the standards listed by HUD. The Center's bylaws are restricted from being amended by the Regulatory Agreement between the Center and the FHA during the life of the HUD mortgage. Thus, the individual units in the complex may not be sold for more than the amount paid by the first occupant plus the cost of improvements approved by the Center. The price is essentially restricted to the amount paid in 1966, and no unit is permitted to sell for what would otherwise be its market value.
In tax years 2003, 2004, and 2005, the City assessed the Elizabeth Center property at $1,300,000, which "was broken down arbitrarily with $400,000 attributable to the land and $900,000 to the improvements." The record does not provide an indication of how the Elizabeth City Tax Assessor arrived at that figure. The Center disputed the assessment and filed an appeal with the Tax Court for each of the tax years in dispute.*fn1
During discovery, expert reports were submitted by each party.*fn2 Trial commenced on August 21, 2006. Testimony was taken from the Center's and City's experts. At trial, the City's expert, Maurice J. Stack, II, using the income approach, opined that the subject premises were worth approximately $8,000,000 in 2002 and $8,600,000 in 2003. However, the Center's expert, Greg Manzione, using the sales approach, opined that the value was $5,256,000 in 2002, $5,250,000 in 2003, and $5,263,000 in 2004.*fn3
The discrepancy was based upon the method by which the experts calculated the value of the premises.
The Center's expert noted that the "[a]pplication of the Sales Comparison Approach requires the comparing and rating of other comparable properties to the property appraised." However, nowhere in his report did the Center's expert state that he could not find comparable properties to the Elizabeth Center property for purposes of sales comparison. Instead, plaintiff's expert testified at trial that it would not be appropriate to use sales outside of this complex [for purposes of comparison] . . . because it's structured for low and moderate income living dwellings and use is restricted to the income levels that the particular residents can have here.
It is also restricted in how the different units can be transferred. It is restricted in the fact that it cannot be leased or used for investment purposes. And when you look at all of the different restrictions, whether they be government imposed or those imposed by the bylaws of this particular facility, it would be difficult . . . or not possible to really find true comparables outside of the subject.
So based on that, I looked at the property as a market unto itself and put the weight on the actual sales within this co-op complex.
In stark contrast, defendant's expert testified that, although he utilized the income approach, as a final test to see where the number fit in, [he] looked to competitive communities [in] Newark, Orange, East Orange, urban areas that have high rise properties that are similar in vintage to [the subject] property, to see what was paid for some of those properties per unit . . . and my value was somewhat in the range, $30,000 a unit, which was supported by some of the other comparables.
The sales approach for appraising real estate is the process by which "comparable properties are analyzed and adjusted for variables." Glenpointe Assoc. v. Twp. of Teaneck, 241 N.J. Super. 37, 48 (App. Div.), certif. denied, 122 N.J. 391 (1990). "Evidence of comparable [recent] sales is effective in determining value only where there is a substantial similarity between the properties to admit of reasonable comparison."
Ibid. (citing Venino v. Borough of Carlstadt, 1 N.J. Tax 172, 175 (Tax Ct. 1980), aff'd, 4 N.J. Tax 528 (Tax 1981)). "In the process of comparison an appraiser must consider in which respects the properties are similar and in which respects they are dissimilar, and make adjustments in either dollars or percentages to account for those differences." Willingboro Chrysler/Plymouth, Inc. v. Edgewater Park Twp., 6 N.J. Tax 168, 184 (Tax 1983). While cost of replacement is a factor to be considered in valuing property under this approach, it is not in and of itself determinative. Further, when considering the various factors under this approach, "the sales price of the subject property is evidential, [but] it is not the exclusive criterion of true value." Glenpointe, supra, 241 N.J. Super. at 50 (citing Rek Inv. Co. v. Newark, 80 N.J. Super. 552, 559 (App. Div. 1963)).
The judge discredited the Center's expert, noting that the "comparative techniques of analysis applied in the sales comparison approach are fundamental to the valuation process." The judge, relying on Glenpointe, recognized that the sales price of the subject property was evidential and not the sole criterion of the property's true value. At the same time, the judge pointed out our decision in Prowitz v. Ridgefield Park Village, 237 N.J. Super. 435 (App. Div. 1989), aff'd, 122 N.J. 1999 (1991), for the proposition that a similar type of resale restriction "is a factor that must be considered in fixing the assessment" but "the maximum resale price obtainable under [such a] deed restriction does not necessarily define assessable value." Id. at 439.
The judge found that the Center's expert's rationale that the true value of the property can be determined by the aggregate of the resale price of each unit increased by the dollar amount of the outstanding mortgage has "not been endorsed by any court, and [was] wholly inconsistent with the sales approach to value as explained by the Appraisal Institute."*fn4 He also noted that the City's suggestion that the property in question can be looked at as a market unto itself was not fully developed by an actual argument or contention.
Although the judge did not address the viability of the City's expert's income approach, he noted that the City's expert did find comparables in neighboring urban areas. The judge concluded that because the Center never established that the City's Tax Assessor, who was not called as a witness, neglected to consider the sale restriction under the Center's bylaws, it had not met its burden in overcoming the presumption of correctness.
Our scope of review in matters arising out of the Tax Court is circumscribed. As a general matter, we recognize the expertise of the Tax Court in state tax matters and will not disturb its rulings unless it "came to its decision in an arbitrary fashion" or its findings of fact are not "supported by substantial credible evidence." Little Egg Harbor Twp. v. Bonsangue, 316 N.J. Super. 271, 285 (App. Div. 1998).
On appeal, the Center acknowledges that the Appraisal Institute is authoritative, however, it asserts that the judge completely ignored the restricted sales and failed to give it any weight. The Center misconstrues the judge's decision. The judge did not ignore the restriction on sale; rather, he pointed out that outside sales had to be considered along with the restriction on sale, and that the Center's failure to do so was not consistent with the sales approach. The judge's criticism of Manzione's approach was based upon the failure to seek out comparable values, a methodology that is well established in our jurisprudence.
The Center's assertion that the judge erred in utilizing the presumption of correctness doctrine is equally unavailing. The judge correctly recognized that this case is governed by the standards enunciated by the Supreme Court in Pantasote, supra, 100 N.J. at 413. In Pantasote, the Court instructed that "'there is a presumption that an assessment made by the proper [taxing] authority is correct and the burden of proof is on the taxpayer to show otherwise.'" Ibid. (quoting Aetna Life Ins. Co. v. City of Newark, 10 N.J. 99, 105 (1952)). That presumption in favor of the taxing authority "can be rebutted only by cogent evidence." Ibid. The evidence must be "'definite, positive and certain in quality and quantity to overcome the presumption.'" Ibid. (quoting Aetna, supra, 10 N.J. at 105); see also F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 431 (1985); MSGW Real Estate Fund, LLC v. Borough of Mountain Lakes, 18 N.J. Tax 364, 373 (Tax 1998). As the judge pointed out, there was a complete absence of any proof by the Center that the City Tax Assessor failed to consider the restrictions on the sale of the units. Thus, the judge had ample grounds under Pantasote to find that the Center failed to overcome the presumption of correctness. Accordingly, we affirm substantially for the reasons expressed by the judge in his letter opinion of January 19, 2007.