G.R.F., Inc. v. Board of Assessors of Nassau County

• Decision Date: 05 April 1977
• Citation: 362 N.E.2d 597,393 N.Y.S.2d 965,41 N.Y.2d 512
• Parties: , 362 N.E.2d 597 G.R.F., INC., Respondent, v. BOARD OF ASSESSORS OF the COUNTY OF NASSAU, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 965

393 N.Y.S.2d 965

41 N.Y.2d 512, 362 N.E.2d 597

G.R.F., INC., Respondent, v. BOARD OF ASSESSORS OF the COUNTY OF NASSAU, Appellant.

Court of Appeals of New York.

April 5, 1977.

James M. Catterson, Jr., County Atty. (Leon Friedman, Mineola, of counsel), for appellant.

Israel Hoffman, New York City, for respondent.

BREITEL, Chief Judge.

In a tax certiorari proceeding, petitioner G.R.F., Inc., owner of Gimbel's department store in the Roosevelt Field Regional Shopping Center, seeks a reduction in the assessment of the land and building owned by it. Supreme Court granted the reduction, in part; the Appellate Division affirmed; and the Nassau County Board of Assessors appeals.

There should be an affirmance. The trial court, in reducing the assessments, rejected both the value arrived at by petitioner, using exclusively a capitalization of income approach, and the value urged by the Board of Assessors, using a computation based only on reproduction cost less depreciation. For the reasons to be discussed, the rejection of each theory of valuation as an exclusive basis was not error, and the adaptation of both on economic analysis was appropriate.

The Gimbel's store was built in 1962. The owner and developer of Roosevelt Field, in return for Gimbel's agreement to construct and operate a department store in the shopping center, conveyed the necessary land to Gimbel's. The owner-developer had previously done the excavation and foundation work and now agreed to contribute $1,320,139.48 toward the building construction. As part of the arrangement the developer guaranteed Gimbel's minimum gross annual sales of $14,000,000 and agreed to pay Gimbel's 3% Of the deficit. Gimbel's agreed to pay parking and tunnel fees of 1/2% Of the excess of sales over $14,000,000. Most of the remainder of the vast shopping center consists of retail stores rented by Roosevelt Field to individual merchants. At issue are the tax assessments only of the Gimbel's property for the period of 1963 to 1972.

Capitalization of income generally provides an acceptable and, in the absence of market data, a preferred method of valuing rental property (see Matter of Pepsi-Cola Co. v. Tax Comm., 19 A.D.2d 56, 60, 240 N.Y.S.2d 770, 776). Where, however, a building is held for the owner's own use, and especially where the building bears the owner's name, income capitalization may not adequately reflect the property's total value (Matter of Seagram & Sons v. Tax Comm., 18 A.D.2d 109, 112, 116, 238 N.Y.S.2d 228, 231, 235, affd., 14 N.Y.2d 314, 318, 251 N.Y.S.2d 460, 462, 200 N.E.2d 447, 448; Matter of Pepsi-Cola Co. v. Tax Comm., 19 A.D.2d 56, 61, 240 N.Y.S.2d 770, 777, supra). Thus, without equating Gimbel's situation with the one existing in the Seagr case, Gimbel's presence in Roosevelt Field, a large and prestigious shopping center, may have value apart from the income that use of the subject property would bring.

At the same time, an assessment based exclusively on reproduction cost less depreciation would seriously overvalue the subject property. The cost approach, which, among other things, ignores entirely factors like functional obsolescence, is useful principally, apart from specialties, to set a ceiling on valuation (see Matter of 860 Fifth Ave. Corp. v. Tax Comm., 8 N.Y.2d 29, 32, 200 N.Y.S.2d 817, 819, 167 N.E.2d 455, 456; see, also, 2 Orgel, Valuation Under Eminent Domain, § 199).

Construction of the Gimbel's store would not have been justified, economically, on the basis of the expected return from the Gimbel's store alone. Instead the improvements were justified in part by Gimbel's status as a 'flagship' store, drawing shoppers to the remainder of the shopping center. The developer, eager to increase the rental value of the smaller stores, subsidized the construction of Gimbel's and for the same reason would have charged a lower rental to a 'flagship' store, if the property had been rented, as is usually the case.

Thus, to the extent that a flagship store is an attraction to the satellite tenants, part of the cost of construction may reflect not value to the flagship store, but value to the remainder of the typical shopping center. That value, in turn, is reflected in the...