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State of New Jersey By the Commissioner of Transportation v. 200 Route 17

July 19, 2011

STATE OF NEW JERSEY BY THE COMMISSIONER OF TRANSPORTATION, PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
200 ROUTE 17, L.L.C., A LIMITED LIABILITY COMPANY OF NEW JERSEY, DEFENDANT-RESPONDENT/CROSS-APPELLANT.



On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-3591-05.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued January 19, 2011

Before Judges Carchman, Graves and Messano.

The opinion of the court was delivered by CARCHMAN, P.J.A.D.

This appeal by the State from a condemnation award, requires us to consider whether an appraiser, in opining as to the highest and best use of condemned property, may consider hypothetical costs of improvements and renovations to the property in determining its fair market value. We hold that the State is required to compensate a property owner for the land and improvements in their present condition, and the trier of fact may consider the reasonable probability of future renovations and approvals required to improve the property to its highest and best use, discounted by the value of the risks and costs of making such improvements. We reverse and remand for a new trial.

Defendant 200 Route 17, L.L.C. cross-appeals from the use of the "court-rule" rate for fixing prejudgment interest. Because we reverse and remand, we deem this issue as premature and dismiss the cross-appeal without prejudice.

These are the relevant facts. On May 23, 2005, the State filed a verified complaint and declaration of taking seeking to acquire approximately 1.65 acres of defendant's 2.86 acre property. The property is located on Route 17 southbound in Maywood and Rochelle Park and is improved by a one-story 31,775- square-foot building, which was directly accessible from Route 17 southbound. The building was rented by Sears and contained a merchandise and service center, parts counter, warehouse and offices. The site is also improved with a blacktop parking lot, which provided parking for 112 cars. The building and improvements were included in the taking. The property remaining in defendant's possession after the taking was reduced to 1.21 acres of vacant land without direct access to Route 17.

At the time of the State's acquisition, the land use ordinance in Maywood permitted industrial uses only; the existing mixed use was a grandfathered, non-conforming use.

After the exchange of expert reports, but prior to trial, the State filed a motion in limine, N.J.R.E. 104, to exclude the testimony of defendant's experts because they valued the property as a renovated retail property, and such a valuation was speculative. The trial court denied the State's motion, explaining, "it's not speculative to undertake that analysis, that it's reasonably probable that those improvements and changes would be made, and that there is at least a basis to submit it to the jury as to whether or not those [expenses] . . . are reasonable."

At trial, the jury was charged with deciding the amount of just compensation defendant was owed for the property interests acquired by the State and damages to the remainder. Both parties presented experts to assist in valuation. The State presented Norman Goldberg as a valuation expert. Defendant presented Mark Sussman as a rebuttal witness, and Jon Brody as a valuation expert.

Goldberg valued the property in its actual physical condition as of May 23, 2005. He employed the cost approach*fn1

because he could not find any comparable sales or rentals to support the market sales or income capitalization approaches. In forming his opinion as to value, he recognized the reasonable probability that the owner could obtain land use approvals to renovate the building for its highest and best use as a commercial property. Ultimately, Goldberg appraised the property at $5,637,000.

Defendant's expert, Brody, used all three approaches in valuing the property. Employing the cost approach, Brody valued the property at $9,133,000. Using the comparable sale approach, Brody valued the property at $8,897,000, while using ...


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