City of Englewood v. DENVER WASTE TRANSFER

• Citation: 55 P.3d 191
• Decision Date: 28 February 2002
• Docket Number: No. 01CA0698.,01CA0698.
• Parties: CITY OF ENGLEWOOD, Petitioner-Appellant, v. DENVER WASTE TRANSFER, L.L.C., Respondent-Appellee.
• Court: Court of Appeals of Colorado

55 P.3d 191

CITY OF ENGLEWOOD, Petitioner-Appellant, v. DENVER WASTE TRANSFER, L.L.C., Respondent-Appellee.

No. 01CA0698.

Colorado Court of Appeals, Div. V.

February 28, 2002.

Certiorari Denied October 15, 2002.

Weiner, Schiller and May, P.C., Mark E. May, Englewood, Colorado, for Petitioner-Appellant.

Faegre & Benson, L.L.P., Leslie A. Fields, John R. Sperber, Peggy P. Chiu, Denver, Colorado, for Respondent-Appellee. Opinion by Judge DAVIDSON.

In this eminent domain proceeding, petitioner, the City of Englewood, appeals from the judgment entered by the trial court upon the findings of a commission awarding compensation to respondent, Denver Waste Transfer, L.L.C. (DWT). The City challenges as erroneous the trial court's admission of evidence based on the land residual method of valuation and evidence regarding the City's opposition to DWT's efforts to obtain approval for use of the subject property as a waste transfer station. We affirm.

The subject property was a former landfill adjacent to Centennial Park on the border between the cities of Englewood and Sheridan. In 1998, DWT purchased the property at a price of $802,210 for the purpose of constructing a waste transfer station. The property was zoned for heavy industrial use, and although a waste transfer station was a use by right, additional approval of a planned unit development (PUD) and a solid waste transfer permit was required from the City of Sheridan before that use was permitted.

DWT sought and obtained the necessary land use approvals to construct and operate a waste transfer station. The PUD and permit ran with the land and were nontransferable to other property. The approval process involved multiple public hearings and review by several public agencies over the course of nearly a year. At the public hearings, various officials from the City opposed approval of the PUD.

The City instituted formal condemnation proceedings pursuant to § 38-1-101, et seq., C.R.S.2001, after the PUD and permit approval but before any construction of the waste transfer station. The City intended to use the property as a public park and recreation facility.

Subsequently, a valuation trial was held before a commission of freeholders. DWT's appraisal expert used a comparable sales method to calculate the value of the property without the PUD and permit at $806,200. To calculate the value with the PUD and permit, the expert used a residual method that considers, inter alia, the estimated value of the property as improved and its income-generating potential. Under this method, the value of the property is determined by multiplying the estimated stabilized net operating income by a net income multiplier, to represent the risk associated with such an investment, and then subtracting the cost of improvement and the net present value of the net income loss during start-up. According to the expert, the net income multiplier for the waste management industry ranged from 4.0 to 7.0. Using multipliers of 4.00 and 4.25, the expert calculated final values for the permitted property in the range of $2,055,000 to $2,395,000 and, taking into account certain other factors, reached a final appraisal of $2,175,000.

DWT's expert testified that he had prepared his report under the assumption that there were no comparable sales but that he had subsequently learned of one sale he considered comparable. Using that sale, he calculated a value for the subject property higher than that based on the land residual method. DWT's expert also calculated the ratio of the unpermitted land value to the total value under the land residual method to obtain a multiplier of 2.70, which he described as being at the low end of multipliers for landfill properties, a similar use. The expert testified that these comparisons demonstrated that the residual method was reasonable.

Prior to trial, the trial court had denied the City's motion in limine to exclude testimony on the land residual method, stating:

[T]he Court is unpersuaded that an in limine ruling, excluding the subject evidence, is appropriate, or that the land residual approach is, per se, speculative or misleading or otherwise so flawed as to require its exclusion in advance of trial[,] particularly, in such a fact-intensive trial. The Court determines that it is up to the Commission, basically, to determine how that evidence is to be received and treated, and what weight, if any, is to be accorded.

At trial, the commission also overruled the City's objections to the evidence.

The City's expert appraised the property by using comparable sales of properties with similar industrial zoning but without a PUD or special use permit, and then adding the cost of obtaining the permit to reach a value of $921,000. At the conclusion of the trial, the commission entered a certificate of ascertainment and assessment with a determined value of $1,853,788.

On appeal, the City contends that the trial court and commission erred in admitting land residual valuation evidence because that evidence is speculative, includes the value of unrealized business profits, and violates the undivided basis rule. The City also contends that admission of evidence of the City's involvement in and objections to the PUD approval was error because that evidence is irrelevant, violates the project influence rule, and is unfairly prejudicial. We disagree with each contention.

We first note that the commission appointed by a trial court in an eminent domain proceeding has the authority to make certain evidentiary rulings, and we review such rulings under the same standards applicable to rulings made by a trial court. See § 38-1-105(2), C.R.S.2001; State Dep't of Highways v. Mahaffey, 697 P.2d 773 (Colo.App.1984); City of Aurora v. Webb, 41 Colo.App. 11, 585 P.2d 288 (1978).

I.

The City contends that the land residual method should be rejected as a matter of law. The City argues that valuation evidence using that method is inadmissible because it relies on hypothetical improvements that do not yet exist; such reliance assumes that the proposed development is an accomplished fact in violation of Department of Highways v. Schulhoff, 167 Colo. 72, 445 P.2d 402 (1968), and renders the method too speculative; and such methods have been rejected previously by Colorado courts. Alternatively, the City argues that use of such a method is not permissible under the circumstances.

A.

The City contends that the valuation evidence using the land residual method should have been rejected in favor of the comparable sales method. We disagree.

When taking property by eminent domain, the condemnor must pay "just compensation" for the property, which is the "present reasonable market value" of the property in light of the property's "highest and best use." See Colo. Const. art. II, § 15; § 38-1-101, C.R.S.2001; City of Aurora v. Webb, supra, 41 Colo.App. at 14, 585 P.2d at 291.

"The commission is entitled to consider any competent evidence, apart from certain factors arising from the very fact of condemnation, which would be considered by a prospective seller or buyer as tending to affect the present market value of the land." Goldstein v. Denver Urban Renewal Auth., 192 Colo. 422, 425, 560 P.2d 80, 83 (1977). The admissibility of evidence regarding property value is governed by an expansive, rather than restrictive, rule. City of Westminster v. Jefferson Ctr. Assocs., 958 P.2d 495 (Colo.App.1997).

The three common approaches to valuing real estate are the market approach (based on comparable sales), the cost approach (cost of construction or reproduction less depreciation), and the capitalization of income approach. Denver Urban Renewal Auth. v. Berglund-Cherne Co., 193 Colo. 562, 568 P.2d 478 (1977). One or more of these approaches may be inapplicable in a given case. Cf. 501 S. Cherry Joint Venture v. Arapahoe County Bd. of Equalization, 817 P.2d 583 (Colo.App.1991)

(valuation for purposes of property tax assessment).

In limited circumstances, other methods of valuation are permitted to calculate the value of property taken. See Denver Urban Renewal Auth. v. Pogzeba, 38 Colo. App. 168, 558 P.2d 442 (1976)

. One such circumstance is a lack of sufficient comparable sales. When the market value of property is uncertain, evidence regarding value for specific purposes is admissible in addition to evidence regarding the proposed use. Denver & R.G.R.R. v. Griffith, 17 Colo. 598, 31 P. 171 (1892).

In condemnation cases, market value is usually established by sales of like property. It does not follow, however, that the owner is precluded from proving value when there have been no comparable sales. In such cases resort may be had to best available data which, even though speculative, under some circumstances may be sufficient to allow a jury to make an informed estimate of value.

United States v. Sowards, 339 F.2d 401, 402 (10th Cir.1964). See also Bd. of County Comm'rs v. Vail Assocs., Ltd., 171 Colo. 381, 468 P.2d 842 (1970)

; Dandrea v. Bd. of County Comm'rs, 144 Colo. 343, 356 P.2d 893 (1960). In appropriate cases, "the fact that some speculation is required does not defeat the admissibility of the evidence but rather relates to the weight to be given to that evidence." State Dep't of Highways v. Mahaffey, supra, 697 P.2d at 776 (hypothetical income from future gravel extraction admissible). See also Julius L. Sackman, Nichols on Eminent Domain § 19.06[6] (3d ed. 2001)("Where property is so unique as to make unavailable any comparable sales data, evidence of income has been accepted as a measure of value.").

DWT's appraisal experts testified that there were not sufficient comparable sales and that, in the absence of such sales, the only way to calculate the added value of the permit and PUD was to use the land residual method.

The land residual method is a variant of the income capitalization method and is useful in certain circumstances:

The land residual technique may also be

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