Aliotta v. Township of Belleville, Nos. 007055-2008, 009644-2009, 009418-2010, 008552-2011; Tax Court; opinion by Sundar, J.T.C.; decided and approved for publication December 9, 2013. DDS No. 35-5-2226 [49 pp.]

Determining that the highest and best use of the property is its current use as a contractor’s yard improved with a residence, the court applies a hybrid approach to valuation and determines its value for the challenged years.

Plaintiffs Victor and Mary Aliotta and Silo Inc. challenge the assessments imposed by defendant Belleville on property located at 86 Lavergne St., designated as Block 2401, Lot 2, for tax years 2008, 2009, 2010 and 2011. The assessments for tax years 2008 through 2010 were $1,905,800; the assessment for 2011 was $2,139,800.

Each party presented an expert in the field of real estate appraisal who was accepted by the court as such. Silo’s expert’s value opinion was: $1,020,500 (2008), $1,023,400 (2009), $1,065,800 (2010) and $1,119,300 (2011). Defendant’s expert’s value opinion was: $1.6 million (2008), $1.92 million (2009), and $2.35 million (2010 and 2011).

The property is improved with a single-family residence built in the 1800s. Its frontage is less than 30 feet from railroad tracks that border one side of the property and part of the house protrudes into the railroad’s right of way. As of the assessment dates, it was owned by Silo with a life estate retained by the Aliottas, who resided there. The land behind the house is called the “Contractor’s Yard” and is leased out by Silo to various commercial tenants for parking their construction vehicles and/or trailers, and for storage. In a prior ruling, the court held that two trailers and a Quonset hut located in the Contractor’s Yard were taxable as real property because they were affixed to the land.

Both experts agreed that the highest and best use of the property, which is in an industrial zone, is as the Contractor’s Yard since it generated the most income to the property. Silo’s expert opined that the residence was superfluous and detrimental to the property’s income-earning potential. Belleville’s expert opined that the property’s use for a residence also met the four tests of the highest and best use. The court finds that the highest and best use of the property, as vacant and as improved, is its current use as a contractor’s yard with the residence.

The court reviews in detail each expert’s methodology and conclusions. It explains that Silo’s expert used three valuation approaches: (1) a “blended” approach of both the sales comparison and income approach, giving minimal weight to the former and allocating 20 percent of the comparable sales conclusion and 80 percent of the income approach conclusion to value the Contractor’s Yard; (2) the cost approach for the trailers and the Quonset hut; and (3) an “extraction method” for valuing the residence by first using a sales comparison approach of other single-family homes, then extracting therefrom a ratio of the sales price of the improvement only based on the allocation of the comparable’s assessment to improvements, and then arriving at a value for the residence based on the extracted sale price of the improvements. He theorized that all land on the property, including land comprising the residence area, was dedicated to the Contractor’s Yard.

Belleville’s expert used only the income approach for all of the components of the property. He used the contract rents for the Contractor’s Yard, and estimated rents for the remaining.

The court notes that there is no one doctrinaire approach to the valuation of property. The answer to which approach should predominate depends on the facts in the particular case. Here, the court finds that the hybrid valuation approach is reasonable because of the property’s unique uses. The income approach is appropriate for the Contractor’s Yard since it is income-producing. The Silo’s expert’s sales comparison component of his blended approach for the Contractor’s Yard is not persuasive. Although he used it to develop the value of just the land, he used improved comparables, and made percentage adjustments to their sale prices for the differential in the gross building area (GBA) of the residence on the property. The reliability of the comparables were also suspect; the 20 percent allocation to this approach was purely subjective; and the approach was minimally weighted by the expert himself.

The court says the cost approach is most appropriate for valuing the trailers and Quonset hut. However, the income approach is appropriate for the block garage (or the second independent garage owned by Silo and included as taxable real property by both experts) because the income imputation for this item is not clouded by the issues of cost/impact of tenant improvements or ground lease payments.

Silo’s expert’s summation approach for the residence attributes no value to the land on which the residence is situated. Since the only approach where he opined a value for the entire fee-simple interest in the property was his sales comparison approach for valuing the Contractor’s Yard, on which the court is not relying, and since the expert’s income approach is based only on contract rents that do not include rent for the land on which the house is located, that land escapes valuation. Additionally, his allocation ratio is based on the allocation of the comparable’s assessment which is improper. Even if the court could use the unadjusted sales prices of Silo’s expert’s comparable home sales as a basis for value conclusion (thus, ensuring that the entire land and improvements are valued), it has no details of the physical description of the comparables (site size, age, GBA size, garage count or the like) to ensure that the expert’s opinion of adequate comparability and zero adjustments is justified.

The court says Belleville’s expert’s income approach for the house is more reasonable because it would provide a value to the land and building occupying the residence portion of the property. His rental comparables, which include houses, contain a fuller description of their physical description, and have lease dates close to the assessment dates. Therefore, the court says it uses these rentals as the potential economic rent for the residence. However, it provides negative adjustments for the undisputed inferior condition and location of the residence.

Held: A hybrid approach is suited for the property. The income approach is the most appropriate for the Contractor’s Yard. The improvements in the Contractor’s Yard, i.e., the Quonset hut and the trailers, are more appropriately valued under the cost approach. However, based on the credible evidence, the block garage must be valued under the income approach. The residence could have been valued either under the sales comparison approach or the income approach, but the proofs adduced allow for use of the income approach with adjustments for condition and location.

Based on this analysis, the court concludes the property’s value is $1,635,800 (2008); $1,735,400 (2009); and $1,996,455 (2011). The assessment for 2010 is affirmed.

For plaintiffs—Joshua D. Novin. For defendant—Christopher John Stracco (Day Pitney).