Metropolitan Atlanta Rapid Transit Authority v. Dendy
| Decision Date | 28 January 1983 |
| Docket Number | No. 39102,39102 |
| Citation | 299 S.E.2d 876,250 Ga. 538 |
| Parties | METROPOLITAN ATLANTA RAPID TRANSIT AUTHORITY v. Frederick H. DENDY, Jr. |
| Court | Georgia Supreme Court |
Charles N. Pursley, Jr., Jo Lanier Meeks, Atlanta, for Metropolitan Atlanta Rapid Transit Authority.
Mark Sallee and Eugene R. Simons, Atlanta, for Frederick H. Dendy, Jr.
Dendy is the owner of a parcel of land comprising approximately 30,000 square feet. An industrial warehouse occupying some 23,000 square feet was constructed on this parcel in 1947. In 1978 the City of Atlanta filed a complaint in Fulton Superior Court to condemn 7,085 square feet of Dendy's land and building and an additional 3,013 square feet of the back portion of the building for use in constructing a proposed MARTA station. Following a hearing a special master awarded Dendy $222,000. The City appealed the award to Fulton Superior Court; thereafter MARTA was substituted as plaintiff in the case.
At trial MARTA's expert testified that in appraising the value of Dendy's land he used the "market approach" whereby he analyzed sales of comparable tracts in the vicinity of Dendy's parcel. MARTA's expert testified that Dendy's property is located in an area which had been, at one time, one of the principal industrial locations in Atlanta, but that this area has declined in industrial growth and is now pockmarked with industrial buildings which have no remaining useful life. The expert expressed his opinion, based on the market approach, that Dendy's land was worth $9.50 per square foot and that the total value of the land taken by MARTA was $67,300. The expert also testified that Dendy's warehouse, while nearing the end of its economic life, had an interim income potential "before demolition or before a change in its use." In ascertaining this value of the building, the expert relied on the "income approach" whereby he determined the sum the building would rent for, deducted rental expense from this figure and then capitalized it into a value. The expert testified he believed the building could be rented for $24,000 per year for five years, but that rental expenses would reduce this figure to an annual income of $22,582. At the end of the five-year period Dendy would need to spend $11,000 demolishing the building in order to "get it back to a usable state at a better use." On the basis of these figures, the expert calculated the interim value of the building to be $2.89 per square foot or $29,200 for that 10,098 square foot portion of the warehouse taken by MARTA. On direct examination counsel for MARTA inquired of its expert whether this method of valuation took "into account any depreciation on the building." The expert responded that the depreciation factor was "built in" to the valuation method he employed, but he offered no opinion as to the amount of depreciation sustained by the building. The expert went on to explain that had he used the "cost approach" of valuation, that is, determining replacement cost of the building less depreciation, it would have been necessary to acknowledge and account for three types of depreciation: physical depreciation, functional obsolescence and economic depreciation. While the expert gave a definitive example of each of these types of depreciation, he did not attempt to apply them to Dendy's warehouse except to state that he found no functional obsolescence in the building.
Dendy offered the opinion of two real estate experts who testified they used the comparable land valuation method or market approach to determine the value of Dendy's parcel. Both experts estimated that Dendy's land was worth $50 per square foot and that the value of MARTA's taking was in excess of $400,000. Both experts testified that they had based their appraisals on the value of the land only as they believed the building had no value.
On direct examination one of these experts testified that there are three approaches in determining value: the market approach where comparable sales in the area are compared to property sought to be appraised; the income approach where rental income is reduced by rental expenses, then "capitalized by a certain percentage rate and divided by a certain percentage rate;" and the cost approach whereby the land value is determined by examining comparable sales, then adding the cost of a new or replacement building less depreciation.
To prove the value of his warehouse, Dendy offered the testimony of William Chastain, a general contractor. Chastain testified that the building was "well-maintained"; that the floor and walls were in "excellent shape"; that the roof system was in "good shape" and that there were no cracks in the foundation. Chastain stated his belief that the building "would last" another fifty or sixty years. Chastain further testified that in 1977 or 1978 Dendy had requested him to "make an estimate on the demolition and reconstruction of the portion of the building MARTA was going to take ... in today's market." Chastain testified that based on 1978 prices it would cost $22 per square foot to rebuild the entire building. He also testified that the sprinkler, electrical and heating systems would not last throughout the remaining life of the building, i.e., another 50-60 years, and that the replacement cost for these items at 1978 prices would be $4 per square foot, leaving a cost of $18 per square foot for reconstructing the building walls, support systems and roof. Counsel for Dendy initially inquired whether Chastain had formed an opinion as to the physical depreciation of the building, but withdrew the question when MARTA's counsel objected to the witness's qualifications. On cross-examination Chastain testified that he was not familiar with the elements of depreciation which affect the market value of a building.
Dendy took the stand and testified that using the market approach he had determined the value of the 7085 square feet of land and building taken by MARTA to be $32.66 per square foot or $231,396. He also testified that he "valued [the additional 3013 square foot of building taken by MARTA] at Mr. Chastain's figure that he gave me back in 1977 of $18 a square foot, and that came out to $54,234." Dendy offered no other evidence of the value of his property.
Out of the presence of the jury MARTA moved to strike Chastain's testimony concerning the replacement cost of Dendy's building on the ground that where a building is not absolutely new, evidence of replacement cost is not sufficient to prove market value unless evidence of depreciation is also shown. Under the same theory MARTA moved to strike that portion of Dendy's testimony valuing the 3013 square feet portion of the building based on Dendy's 1978 figures of replacement costs.
The jury awarded Dendy $110,175.72 as just and adequate compensation for the property taken by MARTA. Dendy appealed and the Court of Appeals reversed, finding the trial court had erred in striking the testimony of Dendy and Chastain as to the replacement cost of the building.
We granted certiorari to determine whether the Court of Appeals correctly held that the trial court erred in excluding these portions of Chastain's and...
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