In Lengthy Decision, The Tax Court Determines Market Value of Commercial Complex

This Tax Court opinion by Presiding Judge Andresini pertains to a tax appeal of commercial property in Teaneck consisting of office space, parking garage, vacant land, and a hotel. Both parties had expert appraisers testify to the purported market value of the 24 acres property.

Both appraisers utilized the income capitalization method. Plaintiff’s appraiser concluded the following values for the office space from tax year 2007-2010: $84,335,000; $84,180,000; $81,778,000; and $80,755,000. Notably, he did not utilize actual rents citing that certain rents or expenses were above market level. Instead, he used nine comparable leases to establish market rent. Township’s appraiser relied on seven leases from the subject property as well as nineteen comparable leases in the market to determine market rent. He concluded the following values for the office space from 2007-2010: $151,757,568; $151,217,505; $146,693,161; and $140,547,251.

Both experts utilized the Rushmore method and reviewed comparable hotels from competitive sets compiled by Smith Travel Research which classifies hotels by Luxury, Upper-Upscale, Upper-Midscale, Midscale, and Economy. Plaintiff’s appraiser used two Upper-Upscale, one Upscale, and one Upper-Midscale hotel to determine value. He determined the net operating income was $3,787,131 for 2007 and 2008 and $2,267,170 for 2009 and 2010. Applying capitalization rates resulted in the following valuation conclusions for the Hotel: 2007-2010: $34,680,000; $34,600,000; $20,695,000; and $20,435,000. The total market value concluded for the office complex and hotel by the plaintiff’s appraiser is (2007-2010): $119,015,000, $118,780,000, $102,473,000 and $101,190,000.

Township’s appraiser classified the Hotel as Luxury/Upper-Upscale and utilized data from five Upper-Upscale hotels and one Upscale hotel. He determined the net operating income was 5,343,849for 2007-2009 and $4,779,698 for 2010. Applying the his capitalization rates resulted in the following valuation conclusions for the Hotel from 2007-2010: $56,850,000; $56,670,000; $55,150,000; and $47,465,000. The total market value concluded by the Township’s appraiser was (2007-2010): $208,607,568; $207,887,7505; $201,843,161 and $188,012,251.

The Court ultimately held neither expert’s conclusions were appropriate. It determined the plaintiff’s expert’s use of market leases was largely unacceptable and found his argument that subject leases/improvements could not be utilized as being unsupported by accepted appraisal practices. It also found the Township’s significant adjustments were not grounded in cognizable data and were arbitrarily applied. The Court relied on the plaintiff’s comparable leases 1-5 and 8 as well as the defendant’s subject leases 6-11 as well as the 18 comparable leases utilized.

The Court determined that neither appraiser’s capitalization rate value was appropriate and applied its own judgment in finding the appropriate capitalization rate. It then concluded the following values for the office park (2007-2010): $126,094,400; $125,741, 200; $116,685,300; $115,007,600 and the following for the hotel (2007-2010): $53,978,300; $53,842,300; $52,462,700; $44,175,000. The Court’s market value conclusions from 2007-2010 were: $180,072,700; $182,583,500; $172,148,000; $162,182,600.

To view the full 67-page Glenpointe Associates v. Twp. of Teaneck decision click here.