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New Jersey Schools Construction Corp. v. Warminster Investments Corp.

October 16, 2009

NEW JERSEY SCHOOLS CONSTRUCTION CORPORATION, A SUBSIDIARY OF THE NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY, A PUBLIC BODY CORPORATE AND POLITIC, PLAINTIFF-RESPONDENT,
v.
WARMINSTER INVESTMENTS CORPORATION, A/K/A WARMINSTER INVESTMENT CORPORATION, DEFENDANT-APPELLANT, AND STATE OF NEW JERSEY; LORR LABORATORIES; HAYK INC.; KAVITA TEXTILE, LLC; K-INC.; THOMAS MARTINES; PARK RIDGE FISHING INC.; PASH APPAREL INC.; SEW-INSTYLE CORP.; WEST NEW YORK FASHION INC.; NEXTEL COMMUNICATIONS, INC.; VERIZON WIRELESS (VAW) LLC; NORTH HUDSON SEWER AUTHORITY AND TOWN OF WEST NEW YORK, DEFENDANTS.



On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-3800-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued September 21, 2009

Before Judges Lisa, Baxter and Alvarez.

Defendant Warminster Investments Corporation (Warminster) appeals from a jury award of $5,689,869 as just compensation for the taking of Warminster's property in the Town of West New York by plaintiff New Jersey Schools Construction Corporation (NJSCC). Warminster maintains that the jury awarded significantly less than the property's actual value because the judge erroneously: permitted the jury to consider the cost of lead and asbestos removal; excluded evidence pertaining to the rental value of cellular phone towers and antennas located on the building's roof; and permitted NJSCC's expert to testify that Warminster would not have succeeded in obtaining a parking-space variance had the building been converted to residential use. Warminster also appeals from the judge's denial of its motion for a new trial.

I.

Before discussing the relevant testimony produced at trial, we provide some context. The jury's task was to determine the amount of just compensation to be paid to Warminster for the taking of its property; however, the amount of just compensation was not based on the property's then-current use or NJSCC's intended future use, but instead on the property's highest and best use at the time of the taking. NJSCC intended to erect a public school on the property, and therefore the parties' positions regarding the property's highest and best use were purely hypothetical and will never be realized.

At the time of the taking, Warminster's property was non-conforming, as it was an industrial building located in a residential zone. The property was comprised of a vacant and boarded-up, four-story, brick, L-shaped building and some small ancillary structures, including a small garage. Several cell phone towers and antennas were located on the roof of the main building, from which Warminster derived rental income.

We turn now to the testimony presented at trial. NJSCC presented Mark Karavolos, an expert in real estate appraisal, and Edward Mermelstein, an expert cost estimator. Karavolos testified that the highest and most reasonable use for the property was a conversion into a seventy-five unit residential development and that "anything above that would be speculative."

He valued the amount of just compensation for the highest and best use of the property as a seventy-five unit residential development at $4,650,000, with a value per residential unit of $62,000, and without including the $225,000 in value that he attributed to the building shell in an earlier appraisal.

Mermelstein calculated a cost estimate for converting the building shell into a residential use, including $1,106,230 for lead paint removal and asbestos remediation. He observed that when the other associated conversion costs were considered, the total cost for converting the building shell into a residential development was $3,680,072. Consequently, he ascribed a net negative value to the building shell in the amount of $1,608,973.

Robert Piscioneri, an architect, testified on behalf of Warminster. On direct examination, Piscioneri explained Warminster's proposed highest and best use of the property as a ninety unit residential development, which would require adding three floors to the existing building shell, the top two of which would be penthouses. A total of 110 parking spaces would be located in a garage that would be erected in a portion of the first two floors of the development, in the open space of the smaller section of the L-shaped building. Piscioneri also explained the differences between the construction of new structures and conversions of existing ones. He observed that conversions "have materials in [them]... that have to be dealt with in terms of their... current use," such as lead paint and asbestos, materials which are no longer permitted in buildings. On cross-examination, Piscioneri acknowledged that no calculations had been conducted to determine the costs for removing asbestos and lead paint from the building shell, and that he had not calculated the costs associated with converting the shell building to a residential structure.

Piscioneri also acknowledged that, in 2004, he had drawn plans for Warminster for a seventy-five unit residential development on the property, conceding that although the plan for seventy-five units was "not up to the maximum that the [property] could yield," seventy-five units "seemed to fit the [property]." Piscioneri also acknowledged that the 2004 plans satisfied all of the Town's zoning requirements, other than maximum "lot coverage" for a "two-story parking structure," for which a variance was needed.

On cross-examination, Piscioneri also conceded that: (1) no traffic study had been prepared for the ninety unit development; (2) the feasibility of adding three floors to the building shell, which was necessary for the ninety unit proposal, was speculative, as no structural engineering studies had been conducted; (3) no seismic studies had been done; (4) no hazardous materials study of the property had been conducted, although such a study was needed in determining the cost of construction; and (5) no soil study had been conducted to determine whether the soil would support the parking structure and the three additional floors. According to Piscioneri, the 110 parking spots Warminster planned to allocate for its proposed ninety unit development were insufficient, because 174 parking spaces were needed.

Edward Kolling presented expert testimony on Warminster's behalf on the subject of land use and planning. Kolling testified there was a reasonable probability that the property could be developed into a ninety unit residential dwelling. In particular, he opined that the Town's Planning Board was likely to grant the required variances: parking, floor area ratios, lot coverage, and front, side and rear yard setbacks. He observed that a "rehab[ilitation] of the existing building would be a better approach to development for the community than would be a new construction on the site." On cross-examination, Kolling acknowledged that there was a greater likelihood of obtaining variances for a seventy-five unit development, as opposed to a ninety unit development, because a ninety unit development required those six variances.

Kolling also discussed parking requirements, noting that pursuant to State requirements, 178 parking spaces were required; however, pursuant to the local requirements, which could supersede State standards ...


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