Posted by: Patricia Salkin | March 19, 2021

NY Appellate Court Reverses Trial Court’s $8.95 Million Condemnation Award, Rejecting Claimants’ Appraisal and Issuing New Judgment Consistent with the Evidence

This post was authored by David Cooper, Esq. of Zarin & Steinmetz

Claimants were the owners of a vacant waterfront site in the Village of Haverstraw, zoned for residential development. On March 27, 2008, the Village condemned the subject property in connection with a large-scale waterfront redevelopment project. The Claimants thereafter filed a claim seeking direct damages for the loss of the subject property. In advance of a nonjury trial on the issue of compensation, claimants submitted an appraisal calculating the market value of the subject property on the vesting date as $13,100,000.00. The Village submitted an appraisal calculating the market value on the vesting as $2,140,000.00.

While both appraisers agreed that the highest and best use of the subject property was multi-family residential, they differed greatly on the number of units that could be built. Claimants’ Appraiser assumed 131 units could be built. This assumption was premised upon a development scheme prepared by a planning professional, who relied upon subsurface parking to meet local zoning requirements. Claimants’ planner did not consider the cost to construct subsurface parking, or whether such costs would impact the financial feasibility of the assumed 131-unit development. The Village’s Appraiser assumed that an 80-unit townhome development could be built. This assumption was premised upon a development scheme prepared by an engineering firm, that reviewed soil tests establishing that a shallow subsurface water table at the site would significantly increase construction costs if subsurface parking were included in the development. The engineering firm also prepared an opinion of probable costs (OPC), showing that various atypical construction expenses would be necessary to pursue a development at the subject property to accommodate the shallow water table, including reinforced utility lines, stormwater management features and special foundations. The Village’s Appraiser utilized this data to test the financial feasibility of the 80-unit development, based upon likely resale prices in the area as of the vesting date.

In addition, the Appraisers’ sales comparisons differed significantly with respect to the per-unit value of the subject property. While each appraiser selected the same comparable sales, they applied drastically different adjustments to arrive at their per-unit value. Claimants’ appraiser opined that a developer would be willing to pay $100,000.00 per unit. This opinion was premised, in part, on a contract with a similar purchase price the Claimants allegedly entered into months prior to the condemnation with an individual who had performed little due diligence concerning development potential or zoning. The Appraiser further opined that purchase prices in the local market increased at a rate of 1% per month. The Appraiser also applied various location adjustments to the comparable sales based on personal opinions regarding the quality of the neighborhoods each comparable sale was located in.

The Village’s Appraiser opined that a developer would be willing to pay $50,000.00 per unit as of the vesting date. Of significance to the Appellate Division, the Appraiser’s opinion was premised upon a sales comparison approach backed by “facts, figures and calculations” in accordance with the Uniform Rules of the Supreme Court set forth in 22 N.Y.C.R.R. Section 202.60. This included housing market data and industry reports demonstrating that the effects of the Great Recession on housing prices started to occur prior to the vesting date, resulting in a downward trend in sale prices. It also included a survey of sale prices in the neighborhoods in which each comparable sale was located, which provided an empirical basis to calculate location adjustments.

After trial, the Supreme Court rejected both Appraisers’ adjustments, and awarded Claimants $8,950,000.00 in just compensation. On appeal, the Appellate Division reversed the Supreme Court’s decision. The Appellate Division found that the Supreme Court should have rejected Claimants’ Appraisal.

As to the highest and best use, the Appellate Division found that the only opinion “supported by the evidence” was the Village’s 80-unit development. Whereas Claimants’ experts failed to consider construction costs, the Village’s experts established the financial feasibility of its proffered highest and best use through “exhibits detailing the construction and development costs underlying the analysis.”  The Village’s Appraiser also demonstrated that there was a demand for a townhouse development as of the vesting date based upon other development in the area.

With respect to the sales comparison approach, the Appellate Division found that the contract relied upon by Claimants’ Appraiser did not reflect a normal “arms-length” transaction sufficient to sustain an opinion of value given the timing and lack of due diligence prior to execution. In addition, the Court rejected the Appraiser’s adjustments because he failed to demonstrate the empirical basis upon which the adjustments were calculated. In the Court’s opinion, the only adjustment supported by the requisite “facts, figures and calculations” were the location, market conditions and topography adjustments applied by the Village’s Appraiser. All of the Appraisers’ other adjustments were rejected.

Finally, the Appellate Division determined that a total of $621,818.00 in atypical costs should be deducted from the purchase price to reflect the “atypical” construction costs identified by the Village’s Engineers.

In re Matter of Village of Haverstraw (Ray River, Co.),  2021 WL 710499 (2d Dep’t 2021)

A copy of the Decision and Order can be accessed here: http://www.courts.state.ny.us/courts/ad2/Handdowns/2021/Decisions/D65698.pdf


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