United States v. CERTAIN INTERESTS IN PROPERTY, ETC., 8280.

• Decision Date: 06 November 1961
• Docket Number: No. 8280.,8280.
• Parties: UNITED STATES of America, Appellant and Cross-Appellee, v. CERTAIN INTERESTS IN PROPERTY IN CUMBERLAND COUNTY, State of NORTH CAROLINA; and Unknown Owners, Appellees, and Bragg Investment Company, Inc., Bragg Development Company, Inc., and Bragg Management Company, Inc., Appellees and Cross-Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

296 F.2d 264 (1961)

UNITED STATES of America, Appellant and Cross-Appellee, v. CERTAIN INTERESTS IN PROPERTY IN CUMBERLAND COUNTY, State of NORTH CAROLINA; and Unknown Owners, Appellees, and Bragg Investment Company, Inc., Bragg Development Company, Inc., and Bragg Management Company, Inc., Appellees and Cross-Appellants.

No. 8280.

United States Court of Appeals Fourth Circuit.

Argued April 13, 1961.

Decided November 6, 1961.

Roger P. Marquis, Atty., Dept. of Justice, Washington, D. C. (J. Edward Williams, Acting Asst. Atty. Gen., Ramsey Clark, Asst. Atty. Gen., Julian T. Gaskill, U. S. Atty., Raleigh, N. C., and Robert R. McLeod, Atty., Dept. of Justice, Washington, D. C., on brief), for the United States, appellant and cross-appellee.

L. P. McLendon, Greensboro, N. C. (Claude C. Pierce, Jr., Greensboro, N. C., John J. Geraghty, Raleigh, N. C., McLendon, Brim, Holderness & Brooks, Greensboro, N. C., and Poyner, Geraghty, Hartsfield & Townsend, Raleigh, N. C., on brief), for owners, appellees and cross-appellants.

Before SOPER and BOREMAN, Circuit Judges, and HARRY E. WATKINS, District Judge.

BOREMAN, Circuit Judge.

This is a condemnation proceeding initiated by the United States on November 1, 1957, to acquire the equity in certain rental housing property located at Fort Bragg, North Carolina, and constructed under the original Title VIII of the National Housing Act, commonly known as the "Wherry Act," 63 Stat. 570 (1949), 12 U.S.C.A. § 1748 et seq. On June 12, 1958, the District Court appointed a commission pursuant to Rule 71A(h) of the Federal Rules of Civil Procedure, 28 U.S.C.A., to determine the amount of compensation to which the owners were entitled. After extensive hearings, the commissioners filed a report, finding that the fair market value of the condemned property was $16,986,989, from which was subtracted the sum of $15,196,018.37, that being the stipulated amount, as of November 1, 1957, of an outstanding mortgage to be assumed by the Government. The owners were awarded $1,790,970.63 for their equity. Later, at the request of the District Court, a supplemental report was filed by the commission, but that report simply confirmed the original. The District Court then made extensive findings of fact which differed in certain aspects from the findings of the commissioners, and drew therefrom conclusions of law.

The United States appeals from the District Court's substitution of its own findings and conclusions for those of the commission and the resulting increase in the award to the owners. There is a cross-appeal by the owners, who contend that the District Court erred in failing to consider and give effect to additional factors which would further increase the award.

The property which was condemned consists of 2000 family housing units, a shopping center composed of eight stores, seven related service buildings, ten miles of paved highways, electric street lights, and complete water, sewer and electric service. It is located on a 516.89 acre tract of land owned by the United States and included in the Fort Bragg military reservation; the tract, in two sections, was leased by the Government to the defendant-owners for a period of seventy-five years, one section from April 1950, the other from September 1951. The condemned property is completely landscaped and has playground and park areas. In effect, it is a self-contained city for about 6000 persons. The lease permitted the lessees to remove, at the termination of the lease, all improvements placed on the land.

The commission found that the improvements on the leased lands had a remaining economic life of thirty years as of the date of taking and that the value of the owners' residual interest in the lease and improvements thirty years from the date of taking would be negligible. The "reproduction-cost-less-depreciation" method and "comparable-sales" method of evaluating the property were rejected by the commission in favor of the "capitalization-of-income" method. The owners argue that the District Court erred in instructing the commission as indicated below¹ regarding consideration of evidence of replacement or reproduction cost. They apparently agree with the Government, however, that capitalization of income is a proper method of evaluating the property in the instant case, though they contend that it is not necessarily the only method which might properly be employed. No objection is made to the use of the Inwood Compound Interest Coefficient Table for computing the exact capitalized value of the property. The primary dispute is whether the District Court was empowered to find and justified in determining, contrary to the commission's finding, that the remaining economic life of the condemned property at the time of taking was 35 years instead of 30 years. Except for the change in the period of the remaining economic life, all the other elements, including the six per cent rate of interest, were used by the District Court in the evaluation formula exactly as found by the commission.²

The commission concluded that, even though the lease had approximately seventy years to run at the time of the taking of the property, the residual value, after thirty years, for the leasehold and improvements was negligible as of November 1, 1957. With this conclusion the District Judge disagreed. He was convinced that the commission had erred further in determining a remaining economic life of only 30 years for the improvements on the leased land and found a remaining economic life of 35 years which, as we shall point out, is supported by the evidence. Though the theoretical basis for the court's ultimate determination is not clearly explained in its opinion³ and findings, we are unable to say that the court's final judgment, increasing the award to the owners to $2,707,220.63, is clearly erroneous. After finding an increased period of remaining economic life, the District Court used the same rate of interest in applying the capitalization-of-income formula as used by the commission with its finding of a shorter period of remaining economic life. The interest rate was one of the factors to be determined, depending in part upon a consideration of the increased risk involved in spreading the return of capital over the longer period of time. In view of the testimony of each of the expert witnesses as to a selection of the proper interest rate to be employed in determining value based upon the capitalization-of-income method, we cannot say that the court erred in using the same capitalization rate adopted by the commission.⁴ It is reasonable to conclude that an increase in the period of remaining economic life would tend to reduce the residual value of the leasehold estate; further, that since there was evidence upon which to base a determination of a period of remaining economic life greater than 30 years, a finding to that effect would reduce the value, if any, of the residual estate remaining after the termination of economic life. Implicit in the District Judge's award is a finding that the November 1, 1957, value of any residual estate at the end of the period of economic life, as extended by him to 35 years, would be negligible.

In addition to its reported opinion, the District Court prepared an unreported statement of its findings of fact and conclusions. In this statement the testimony of the Government witness Cantwell, a real estate appraiser, is analyzed, characterized as chimerical, and shown to be premised, in its crucial aspect dealing with the remaining economic life of the condemned property, almost entirely on speculation which has no apparent support from other evidence in the record. It is from Cantwell's testimony alone that the commission found and determined a remaining economic life of 30 years. The District Court noted that Cantwell based his opinion on "his market information" that "a typical purchaser of Wherry equities was an individual or syndicate; that such individuals are normally mature people of approximately forty years old or better." He further speculated that, because of the advanced age of the theoretical purchasers, they would want to recover their investment within a relatively short period of time and would not be interested in property with a long economic life. Yet, as the District Court points out, Cantwell had earlier written in his appraisal report that there had been no outright sales of Wherry housing to his knowledge. At no point does Cantwell give the source of his "market information" about typical investors and their probable ages.

Cantwell further testified that, in his opinion, no prudent investor would want to risk his funds in a venture such as the Fort Bragg project unless he could recover his investment, in addition to earning an income thereon, within a reasonably short time in view of the effect of technological development on military planning and the probability that Fort Bragg would not always be able to provide sufficient numbers of personnel to occupy the Wherry housing. The District Judge, however, points out that Fort Bragg is as permanent as any military post could possibly be. Furthermore, the Commandant of the Fort had, subsequent to the completion of the Wherry housing, issued a certificate of need to authorize the construction of additional housing for military personnel under a later version of Title VIII of the National Housing Act, 69 Stat. 646 (1955) as amended (referred to by counsel as the Capehart Act), 12 U.S.C.A. § 1748 et seq., 42 U.S. C.A. § 1594.

The District Court, in its unreported findings, further explains that:

"It is apparent that the witness Cantwell did not observe the correct test for the determination of fair market value and just compensation. His approach considered only the attitude of the `typical purchaser\' and did not consider the views of the seller. The true test of fair market value is what price will be agreed upon by a willing seller

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