United Technologies Corp. v. East Windsor

• Decision Date: 05 November 2002
• Docket Number: (SC 16761).
• Citation: 262 Conn. 11,807 A.2d 955
• Court: Connecticut Supreme Court
• Parties: UNITED TECHNOLOGIES CORPORATION v. TOWN OF EAST WINDSOR

262 Conn. 11

807 A.2d 955

UNITED TECHNOLOGIES CORPORATION v. TOWN OF EAST WINDSOR

(SC 16761).

Supreme Court of Connecticut.

Argued September 13, 2002.

Officially released November 5, 2002.

Borden, Norcott, Katz, Vertefeuille and Zarella, Js. Gregory F. Servodidio, with whom were Julie A. Morgan and, on the brief, Elliott B. Pollack, for the appellant (plaintiff).

Frank W. Murphy, with whom was Kara T. Murphy, for the appellee (defendant).

Opinion

NORCOTT, J.

The principal issue in this appeal is whether the trial court's conclusion about the subject property's highest and best use was improperly restrictive, forcing it to ignore relevant market data when valuing the property. The plaintiff, United Technologies Corporation,¹ brought this action against the defendant, the town of East Windsor, pursuant to General Statutes § 12-117a,² appealing from the decision of the board of assessment appeals of the town of East Windsor (board) upholding the assessor's determination of the fair market value of the plaintiff's aftermarket support facility. The trial court determined that the plaintiff's property was not overassessed and dismissed the plaintiff's appeal. The plaintiff appealed from that judgment to the Appellate Court, and we transferred the appeal to this court pursuant to Practice Book § 65-1 and General Statutes § 51-199 (c). We affirm the judgment of the trial court.

The record reveals the following facts and procedural history relevant to the disposition of this appeal. The plaintiff is the lessee of improved real estate located at 97 Newberry Road in East Windsor. The plaintiff uses this property as an aftermarket support facility for the manufacturing, repairing, and reconditioning of jet engine fuel injectors and propellers for aircraft piston engines. The plaintiff also manufactures testing equipment and performs ancillary administrative tasks at the facility. The property is located in a primarily industrial area on the north side of Newberry Road in East Windsor, just east of Route 5. Route 5 is a commercial highway that provides ready access to Interstates 84 and 91, as well as nearby Bradley International Airport in Windsor Locks. Several other major corporations also have facilities in this area of East Windsor, which is zoned for light industrial use with a minimum lot size of 60,000 square feet.

As the trial court aptly stated, the plaintiff's property is "not the normal run-of-the-mill plant." It is a 278,025 square foot light industrial facility located on 39.41 acres of land with an on-site, tax-exempt wastewater treatment facility. The facility is a one-story building, 78.2 percent (217,455 square feet) of which is devoted to manufacturing, with the remaining 21.8 percent (60,570 square feet) allotted for office space. The structure also contains an 8000 square foot interior mezzanine. The ceiling height inside the building is fourteen feet in the offices and more than twenty-six feet in the manufacturing area. The facility includes environmentally controlled "clean rooms," blast-resistant doors, explosion-containing walls for a chemical storage area, a reinforced concrete floor designed for heavy loads, heating and air conditioning for the entire building, the highest quality plumbing infrastructure, floor drainage systems with emergency tanks to contain chemical spills, and full fire suppression capabilities, including sprinklers and a fire warden's station.

In June, 1987, the plaintiff entered into a fifteen year lease with Beckenstein Enterprises (Beckenstein). Under the terms of the lease, Beckenstein was to construct the facility in accordance with the plaintiff's plans and specifications. In November, 1987, Beckenstein completed the purchase of the necessary land on which the plaintiff's facility is located for $1,400,000, which is equal to $35,523 per acre. The construction was financed with funds provided by Prudential Insurance Company of America (Prudential).³ Construction was completed in 1988, and the plaintiff took occupancy in 1989. The lease itself is a modified triple net lease under which the plaintiff is responsible for all operating expenses, including taxes. As lessor, Beckenstein, remains responsible for insurance and structural repairs. The initial rent under the lease for the first five years was based on the cost of construction, including change orders. Thereafter, the rent was adjustable for the balance of the lease period, depending on the mortgage to Prudential. In 1994, Beckenstein and the plaintiff executed the fifth amendment to the lease.⁴ Under this amendment, the annual rent for each of the remaining ten years on the lease was $4,251,687. The amendment also provided the plaintiff with an option to purchase the property for $25,344,000 or a mutually agreed upon price at the termination of the lease, or, in the alternative, a right of first refusal.

On the list of October 1, 1995, John Valente, an independent appraiser hired by the town of East Windsor, assessed the property pursuant to General Statutes § 12-63b⁵ and 12-62a⁶ and determined that the total fair market value⁷ of the property was $22,236,770, with an assessed value of $15,565,740. Valente testified before the trial court that he used the cost approach⁸ to appraise the property because he felt it was best adapted to "[deal] with [the] specific features or subtle characteristics of [the] property. . . ." He also performed an evaluation using the income capitalization approach,⁹ but did not use the market sales approach¹⁰ to determine a valuation because he concluded that there were no sales of properties comparable to the plaintiff's.

The plaintiff appealed from Valente's determination to the board seeking a reduction of the assessment. The board did not reduce the property's assessed value. The plaintiff then appealed from the board's decision to the trial court.¹¹

The trial court framed the primary issue as whether Valente's valuation of the property was excessive. The plaintiff and the defendant each presented the expert testimony and reports of two independent appraisers. Arnold J. Grant and William N. Kinnard testified for the plaintiff, and Christopher K. Kerin and Ronald B. Glendinning testified for the defendant. The defendant also presented testimony by Valente, who made the original assessment, and Joseph Gambino, a construction expert.

The starting point of the trial court's analysis of the town's valuation was a determination of the property's highest and best use¹² at the time of the assessment. The plaintiff's and the defendant's appraisers each testified to a highest and best use for the property. They then arrived at estimates of the property's fair market value, following the same basic analytical framework; see footnotes 8 through 10 of this opinion; but reaching ultimately divergent conclusions.

The plaintiff's experts, Grant and Kinnard, concluded in a joint report submitted into evidence that the fair market value of the property was $13,825,000. They arrived at that conclusion by valuing the property at $13,825,000 under the market sales approach,¹³ $13,800,000 under the income capitalization approach,¹⁴ and $14,100,000 under the cost approach.¹⁵ The plaintiff's experts ultimately adopted the value from the market sales approach as their conclusion because it was, in their view, the "preferred approach" when "sufficient numbers of comparable sales transactions data are available in appropriate quality and reliability."

The defendant's expert appraisers, Kerin and Glendinning, performed their valuation analysis using the same three approaches as the plaintiff's experts and concluded that the property had a fair market value of $25,800,000 on October 1, 1995. They did not utilize a market sales approach because, in their opinion, the plaintiff's facility is a "limited market" property with no comparable property sales at or near the valuation date. Kerin and Glendinning arrived at fair market values of $26,000,000 under the income capitalization approach,¹⁶ and $25,700,000 under the cost approach,¹⁷ which they reconciled to their final estimate of $25,800,000.

The trial court adopted the opinion of the defendant's appraisers that a market sales approach was inapplicable in this case because there were no comparable sales. The court deemed the plaintiff's experts' opinion to the contrary as "not credible." The trial court also determined that the income capitalization analysis of Kerin and Glendinning was more credible, stating that "the rentals used by Grant and Kinnard involved properties with dissimilar sizes and uses to the subject property." Finally, the trial court found the use by Kerin and Glendinning of the historic construction costs, in addition to the Marshall Valuation Service data utilized by both sides in their cost approach analyses, to be a more credible way to determine value. See footnote 17 of this opinion.

The trial court concluded that the fair market value of the subject property on October 1, 1995, was $22,636,600. The court arrived at that figure by using the cost analysis of Kerin and Glendinning, substituting its own finding of the vacant land value from Beckenstein's original purchase and omitting entrepreneurial profit.¹⁸ The court then concluded that its fair market value of $22,636,600 was "compatible" with the town assessor's original appraisal of $22,236,770. Accordingly, the trial court dismissed the plaintiff's appeal after the five day trial, concluding that "[the plaintiff] has not met its burden of showing that the property was overvalued."

On appeal, the plaintiff claims that the trial court's conclusion as to the highest and best use was improperly restrictive because it failed to consider that the property could be put to other industrial uses, forcing the court to ignore relevant market data in contravention of General Statutes §§ 12-63¹⁹ and 12-63b when valuing the property. See footnote 5 of this opinion...