Site Improvements on Vacant Land Fair Game for Tax Assessment

A decision this week by New Jersey Tax Court Presiding Judge Patrick DeAlmeida affirmed that the market value of site improvements on a vacant parcel of land must be included in the assessments on the undeveloped parcels.  The case involved an appeal by the owner, Hovbros Cinnaminson Urban Renewal, LLC, the designated redeveloper of a 17 acre parcel of land in Cinnaminson Township that was approved for the development of 205 age-restricted multi-family housing units.  After acquiring the property in 2006, Hovbros installed significant site improvements at the property, including roads, parking lots, curbs, utilities, storm water drainage facilities and sidewalks.  Approximately 25 of the units were constructed and sold, leaving about 180 units (in 10 buildings) to be constructed.

Due to the downturn in the economy, the rest of the units were not constructed and Hovbros filed appeals in 2011 challenging the assessments on each of the 180 units.  Each of those units had a land assessment of $40,000.  Its appeals contended that the site improvements had limited value in the market place, while the assessor disagreed and determined, using a cost approach, that the site improvements had a contributing value of approximately $14,000 of the $40,000 assessment on each unit.

After trial, the Tax Court concluded that the site improvements had value in the market place, noting that a “purchaser in the marketplace intending to complete the project approved for the subject property would place a value on not having to expend resources on the extensive site improvements necessary to support the project.”  One of the comparable sales introduced into evidence specifically corroborated this conclusion.  Accordingly, the Court held that a total assessment of $35,000 per unit represented the equalized value as of the assessment date.  In so doing, the Court held that the use of the cost approach to reach an opinion of value on this component of the property was credible, and was the only evidence before the Court on the issue.  Significantly, the Court also affirmed the assessor’s inclusion of an entrepreneurial profit in arriving at a value under the cost approach was appropriate because it reflected the time, effort and incidental expense of the owner in developing the property.

A copy of the Tax Court’s opinion in Hovbros Cinnaminson Urban Renewal, LLC v. Tp. of Cinnaminson, is available here.