Neither Side Convinces the Tax Court, Assessments Ultimately Affirmed
Plaintiffs, Palisadium Management Corp and Carlton Corp., appealed the Borough of Cliffside Park’s assessment for their property for tax years 2011, 2012, and 2013. The properties under appeal were two separately taxed lots that operated as a single economic unit. The property is collectively known as the Palisadium which consists of a banquet facility overlooking the Hudson River with NYC views and a fitness/health spa facility, as well as a four-story parking garage (630 parking spaces) that serves the banquet hall and fitness center. Although the two lots were owned by two distinct taxpayers, given the use of both parcels as a single economic unit, the Tax Court consolidated the matters for purposes of trial.
The trial took place over the course of five days and both sides offered the testimony of an expert real estate appraiser. Plaintiffs’ expert utilized a “hybrid” approach which consists of utilizing the market/sales approach to the valuation of the banquet hall and the income approach in valuing the fitness center. Plaintiffs’ expert further applied the cost approach to confirm his results. On the other hand, the Borough’s expert argued that the unusual combination of uses, coupled with the subject’s “spectacular Manhattan skyline views,” qualified the property as “special purpose” or unique and thus the expert concluded that the use of the cost approach was the only appropriate method to value the subject property.
In a 26-page published opinion, the Tax Court addressed the valuation approaches utilized by both experts. First, the Tax Court discussed the fallacies inherent in the Borough’s expert’s approach in utilizing only the cost approach. The Borough’s expert argued that the cost approach was the only applicable approach because there were no comparable sales, no leases for comparable banquet halls or fitness centers, and due to the subject’s location with excellent skyline views. The court reasoned that “mere physical location of the structure does not place it in a classification of ‘special purpose’” and “skyline views enjoyed by the subject is not exclusive to the subject property and are not truly unique.” Furthermore, the multiple uses at the subject property do not constitute “special purpose” like a clubhouse, museum, church property, public school, hospital, theater or brewery. The “mere combination of the banquet facility use and the health facility use does not elevate the subject property into the sphere of unique special-purpose properties.” In addition, the Borough’s expert’s reliance on an automated software that provided cost estimates further impeded his credibility. Plaintiffs’ expert’s cost approach was also rejected for the same reason, namely, the use of an automated valuation software to generate cost estimates.
The Tax Court accepted the plaintiff’s approach to value – utilizing a hybrid of the sales approach for the banquet facility and income approach for the health fitness center. Nonetheless, the court found credibility issues with plaintiffs’ expert’s various adjustments. Among the errors with the expert’s adjustments, the court determined that plaintiffs’ expert’s adjustment for view to be the most problematic. Plaintiffs’ expert made the view adjustment by contacting various banquet facilities and obtained the rates they charged per plate during their busy wedding seasons. The expert then concluded that the price difference of other facilities compared to the subject property was “directly attributable to the superior views” at the subject and thus concluded a 10% positive adjustment to each sale. However, plaintiffs’ expert provided no objective data to support such a conclusion and the court determined this to be to be subjective and unacceptable.
Unable to provide reliable proof of value of the banquet facility, the court did not need to address the valuation of the health/fitness facility. Therefore, the court affirmed the assessments.
A copy of the Tax Court’s published opinion can be found here.
