Housing Authority of City of Little Rock v. Rochelle
| Decision Date | 23 November 1970 |
| Docket Number | No. 5--5387,5--5387 |
| Citation | 459 S.W.2d 794,249 Ark. 524 |
| Parties | HOUSING AUTHORITY OF the CITY OF LITTLE ROCK, Appellant, v. Mary ROCHELLE and Ella Rochelle, Appellees. |
| Court | Arkansas Supreme Court |
Smith, Williams, Friday & Bowen, by William L. Terry, Little Rock, for appellant.
Louis A. Dodrill, Little Rock, for appellees.
On direct appeal Housing Authority of the City of Little Rock asserts that a jury award of compensation to appellees in the amount of $45,000 in an eminent domain proceeding was excessive and not supported by substantial evidence. We do not agree that the evidence supporting the verdict was insubstantial.
The property taken was a lot 50 feet wide and 140 feet deep on which there was an apartment building. It is located at Louisiana and Eleventh Streets in Little Rock. It fronts on Louisiana, is five blocks from the downtown shopping area and one block from the First Baptist Church, and was purchased by the Rochelle sisters, appellees here, in 1950. The building was divided into six apartments, one of which was occupied by appellees, one of whom is retired and the other employed by Western Auto Supply Company as a saleslady. The remaining five apartments were occupied by tenants who paid a rental of $60 per month. The apartments were furnished, and appellees paid for all utilities. It is conceded that the building was well maintained, particularly on the interior. Appellant's expert witnesses valued the lot alone at $22,400 and $22,500, but only valued the building at $10,000 and $8,300, respectively. One of them stated that the building was very sound and that, with normal maintenance, it would last for 200 to 300 more years.
Tenants, who occupied apartments in the building at the time of the taking and had to find other apartments, placed the fair rental value of the units at $90 to $100, based upon the amount for which like apartments were being rented. Bill Burroughs, who deals in rental property in Little Rock fixed the rental value of the apartment occupied by appellees at a minimum of $125 per month and the remaining five at $80 per month, which he said was $10 per month less than any other apartment in that neighborhood.
The taxes on the property amount to $318 per year and insurance premiums, $167. Ella Rochelle stated that depreciation amounted to $693 per annum and utilities, $1050. She placed maintenance costs at approximately $200 annually. 1 She calculated that the property would produce a gross annual income of $6,480 per year based upon a rental value of $90 per month per apartment, or a net income of $4,052 per year. She testified that an investment of.$80,570 would be required to produce a like income at an interest rate of 5% per annum. This is obvious from a simple mathematical calculation.
Capitalization of income is a recognized method of arriving at the fair market value of real estate used to produce rental income, in determining just compensation in eminent domain cases. We have long held evidence of rental value to be admissible as a factor to be considered in determining just compensation. Desha v. Independence County Bridge District No. 1, 176 Ark. 253, 3 S.W.2d 969. See also, Springfield v. Housing Authority of City of Little Rock, 227 Ark. 1023, 304 S.W.2d 938; Osceola Housing Authority v. Gillespie, 244 Ark. 248, 424 S.W.2d 521. This is certainly a matter that would be considered by a prospective purchaser in estimating the market value of the premises. Regents of University v. Irwin, 239 Minn. 42, 57 N.W.2d 625 (1953). It has been said that, when property is rented for the use to which it is best adapted, the rent capitalized at the rate which local custom adopts for that purpose forms one of the best tests of value. 5 Nichols, Eminent Domain, 3rd Ed. 19--6, § 19.2. This method is an accepted one, not uncommonly or infrequently utilized in eminent domain cases. See Winner, Rules of Evidence in Eminent Domain Cases, 13 Ark.L.Rev. 10, 18; Bergeman v. State Roads Comm., 218 Md. 137, 146 A.2d 48 (1958); State by and thru State Highway Comm. v. Nunes, 233 Or. 547, 379 P.2d 579 (1963); Redevelopment Agency of City of Santa Monica v. Zwerman, 240 Cal.App.2d 70, 49 Cal.Rptr. 443 (1966); In re Lincoln Square Slum Clearance Project, 15 A.D.2d 153, 222 N.Y.S.2d 786 (1961), aff'd 16 N.Y.2d 497, 260 N.Y.S.2d 439, 208 N.E.2d 172 (1965), motion to reargue and amend remittitur denied 16 N.Y.2d 828, 263 N.Y.S.2d 169, 210 N.E.2d 459 (1965); 1 Orgel on Valuation under Eminent Domain, 648, § 157. In proceedings involving property having a rental value, the fact that part of it is occupied as a residence by the owners does not make evidence of this value any less competent in determining market value. Regents of University v. Irwin, supra. See also, Bergeman v. State Roads Comm., supra. The fair rental values may be considered when they are greater than the rentals reserved at the time of the taking. In re Lincoln Square Slum Clearance Project, 16 N.Y.2d 497, 260 N.Y.S.2d 439, 208 N.E.2d 172 (1965). We have strongly implied that this method is acceptable when the income from the property consists only of rents. Hot Spring County v. Bowman, 229 Ark. 790, 318 S.W.2d 603. One of appellant's expert witnesses testified that the income approach is one of three used in arriving at market value. He felt that it was the best indicator of value on this particular piece of property. 2
When we view this evidence in the light most favorable to appellees, as we must, it substantially supports the verdict. Even though Ella Rochelle did not make any deduction for the amount of rent attributable to the furnishings, for which appellees were compensated by appellant, the only evidence as to this amount was presented through one of appellant's expert witnesses who fixed it at $5 per apartment per month. This would amout to $360 per year. If the net income based on rental value was reduced by this amount it would be $3,692, which would represent 5% on an investment of $73,840. The witness stated one might, at present, be able to realize an income of 7 1/2% on an uninsured investment. This net income at this rate of interest would require an investment of $49,226. The witness stated a 6% return on an insured income was probable and that not more than 7% could be had. A 7% return would require an investment of $52,742.85, and a 6% return, $61,533.37. A 7 1/2% return on the amount of the verdict, would be...
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