United States v. Tampa Bay Garden Apartments, Inc., 18446.

• Decision Date: 01 September 1961
• Docket Number: No. 18446.,18446.
• Citation: 294 F.2d 598
• Parties: UNITED STATES of America, Appellant, v. TAMPA BAY GARDEN APARTMENTS, INC. and Tampa Bay Manor, Inc. et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

294 F.2d 598 (1961)

UNITED STATES of America, Appellant, v. TAMPA BAY GARDEN APARTMENTS, INC. and Tampa Bay Manor, Inc. et al., Appellees.

No. 18446.

United States Court of Appeals Fifth Circuit.

September 1, 1961.

Roger P. Marquis, Atty., S. Billingsley Hill, Atty., Dept. of Justice, Washington, D. C., Robert F. Nunez, Asst. U. S. Atty., Tampa, Fla., Ramsey Clark and Perry W. Morton, Asst. Attys. Gen., E. Coleman Madsen, U. S. Atty., Miami, Fla., Robert M. McKee, Atty., Dept. of Justice, Washington, D. C., for appellant.

Chester H. Ferguson, John M. Allison, David C. G. Kerr, Wm. Terrell Hodges, Tampa, Fla., Macfarlane, Ferguson, Allison & Kelly, Tampa, Fla., of counsel, for appellees.

Before JONES and BROWN, Circuit Judges, and CONNALLY, District Judge.

JONES, Circuit Judge.

The United States brings this appeal from the district court's judgment entered upon an award made by three Commissioners appointed to determine the issue of just compensation in the condemnation and taking by the Government of interests in two housing projects constructed by the corporate appellees within the federal enclave of MacDill Air Force Base at Tampa, Florida, pursuant to Act of Congress of August 8, 1949, 63 Stat. 570, 12 U.S.C.A. § 1748 et seq., known as the Wherry Act. The land on which the projects were built belonged to the United States, but had been leased to the corporate appellees for a term of 75 years, and the leases had approximately 67 years remaining at the time of the Government's declaration of taking in January 1958. It was stipulated by the parties at a pre-trial conference that the corporate appellees would be considered as one and that the award of just compensation would be made in a lump sum without allocation between them. Consequently, the appellees are here treated as a single entity.

The Government instituted this condemnation proceeding pursuant to the authority given to it by 42 U.S.C.A. § 1594a, as amended July 12, 1957, Public Law 85-104, Title V, § 504, 71 Stat. 303. The Government requested trial of the issue of just compensation by a jury, but it was referred to Commissioners appointed by the court pursuant to 42 U.S. C.A. § 1594a(c) (1) and Rule 71A(h), Fed.Rules Civ.Proc., 28 U.S.C.A. In its pre-trial order, which was later incorporated into the order appointing a commission, the district court provided:

"The admissibility or exclusion of evidence shall be determined by the Chairman of the Commission, subject to review by this court in the manner specified in such order of appointment. The court hereby determines, however, that either party shall be permitted to introduce into evidence testimony by qualified experts based on any of the recognized methods of appraisal, which are:

"(a) Comparable sales, if any,

"(b) The capitalization of income method of appraisal,

"(c) Reproduction or replacement cost, with appropriate adjustment for depreciation; and

"(d) Any other factors relevant and material to issues of just compensation."

The Commission heard testimony presented by expert witnesses for both the Government and the appellees as to the value of the interests taken. The evidence showed that the property consisted of 129 residential buildings, 22 buildings containing garages and storage cubicles, 18 laundry buildings, telephone substations and administrative and maintenance buildings, all of concrete-block construction. Each residential unit was furnished with electrical appliances, an oil-fired space heater and venetian blinds, and other furniture and fixtures were available by rental to the occupant of each unit. Improvements, consisting of streets, sidewalks, curbs, gutters, water and light distribution systems, sewage facilities and landscaping had been added to the projects. The Commission found that all of the property was in sound condition as of the date of taking and that any termite damage, reportedly existing in several of the buildings, was inconsequential at the time of taking.

It was shown that the remaining balance on the principal of the mortgages executed by the appellees against the projects totaled $5,989,304 at the time of taking, bearing interest at 4 per cent. per annum. Under the terms of the mortgages the debtor was required to make a payment of $368,115 each year which would discharge the debt and interest in approximately 27 years from the date of taking. The mortgage agreement also required that the debtor pay an insurance premium of $30,053 each year.

It was determined by the Commission that the net income that might be derived from rentals was limited by the lease agreements and conditions, and that a schedule of rents for designated and non-designated military and civilian personnel had been approved and fixed by the Federal Housing Administration. The Commission concluded that, "based upon a careful consideration and analysis of the testimony of these expert witnesses for both parties, and upon a consideration of all the evidence and testimony in this case, * * * the annual stabilized net income from the leasehold, before provision for payment of the mortgage principal, interest and insurance, and before provision for amortization of investment in equity," was approximately $540,000 per annum, and that the leasehold had a period of utilization of slightly more than forty years.

With respect to the furniture and fixtures, it was determined that these resulted in a better utilization of the leasehold, and they were regarded as a short-lived facility, and consideration was given to their effect on the gross income from the projects and to the financial burden of necessary replacements.

The Commission relied primarily upon the capitalization of income method of appraisal, since it had found there were no other sales of Wherry housing projects upon which it could base its evaluation of the projects in the case before it. The Government had presented evidence regarding the sales of three other Wherry projects, but the Commission refused to consider them as a separate method of appraisal, holding that these sales were too remote in time and the properties were not sufficiently comparable to the leasehold here involved. Other than pointing out the factors already mentioned and saying that, "the expert witnesses for both parties have widely separated opinions as to the depreciated replacement value of the improvements to the leasehold," and that it "carefully and at length considered every aspect of this case as reflected in the testimony and evidence submitted," the Commission did not indicate any reliance upon any method of appraisal except the capitalization of income method. Basing its judgment on conclusions drawn from the testimony given by all the expert witnesses, the Commission found that the investor would be required to receive an annual return of 2.5 per cent. on his investment in order to return his investment in forty years, and that, because of "the hazards and uncertainties surrounding the leasehold income, and the fact that the rate would not be the same each year, but less in the first 27 years and greater in the remaining 13 years," the investor would expect as the fair income return on investment in equity an average annual rate of 10.5 per cent. Thus, in order to return the investment in forty years and receive a fair income from the investment, a total average annual rate of 13 per cent. was required. By capitalizing at this rate the balance of the income, after deductions for the payment of principal and interest on the mortgages and for insurance, for forty years, the Commission concluded that a fair market value of the interest taken was $2,100,000 and an award of that amount was made.

Upon the filing of the Commission's report with the court, the Government filed its objections and exceptions. The court reviewed all of the evidence in the cause. In addition to holding that the Commission's findings were supported, the court elaborated upon the evidence and in its findings of fact stated its reasons for sustaining the award. Among other things, the court stated that at the time of taking there were no vacancies in the projects, and that while the appellees were required by the lease agreements to give preference in renting to designated military and military-connected civilian personnel at rent schedules approved by the Federal Housing Administration, the units, when not required for such personnel, could be rented to non-designated tenants at the higher Tampa area market rents. Due to the scarcity of housing in the Tampa area and the location of the projects, even if none of the units were rented to designated military personnel, all could be readily rented to others at higher rents. As a result, the court found that the projects were distinguishable from those located on remote military reservations which were wholly dependent upon military personnel as tenants.

With respect to taxes, the extent of the Commission's consideration of this matter is shown by its statement that it, "carefully and at length considered every aspect of this case as reflected in the testimony and evidence submitted." The court commented on the matter of taxation and noted that the leasehold interests were exempt from taxation by the State of Florida or any governmental unit thereof under the controlling precedents of Park-N-Shop, Inc. v. Sparkman, Fla.1957, 99 So.2d 571; Patrick Gardens, Inc. v. Nash, Fla.1958, 100 So.2d 626.

The court adopted as proper the Commissioner's rejection of the comparable sales method of appraisal and agreed with the Commissioners that the other sales of Wherry projects introduced by the Government were too remote as to time and the properties were not comparable to the projects here involved. In addition to repeating the substance of that which the Commissioners has said, the court stated that the other sales of Wherry projects involved the sale of corporate stock and not the sale of the leasehold properties themselves,...