Matter of City of New York (Eman Realty Corp.)

Citation: 2021 NY Slip Op 04752Docket: 2018-00873

Court: Appellate Division of the Supreme Court of the State of New York; August 25, 2021; New York; State Appellate Court

Original Court Document: View Document

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In the case of City of New York v. Eman Realty Corp., the City of New York appealed a decision from the Supreme Court, Kings County, which awarded Eman Realty Corp. $5,549,000 as just compensation for the condemnation of their property. The appellate court modified this amount, reducing the final award to $3,959,000 while affirming the decision overall, with no costs or disbursements.

The condemnation involved several adjoining parcels in Brooklyn owned by Eman Realty Corp., which subsequently filed for compensation due to the loss of these properties. During a nonjury trial, both parties' experts agreed that the highest and best use of the property was as a multifamily dwelling, given that the buildings were subject to rent stabilization. However, the experts employed different methodologies to assess the property’s value.

The City's expert utilized the income capitalization approach, calculating net operating income by subtracting expenses and vacancy loss from total rent roll, then applying the capitalization rate using the Akerson Format. This expert also deducted $746,000 for necessary repairs and concluded a value of $1,750,000. In contrast, the claimant's expert calculated effective gross income, incorporating a 6.5% anticipated rent increase and using an effective gross income multiplier, resulting in a value of $5,000,000 based on several sales comparisons. The trial court ultimately sided with the claimant's valuation, leading to the appeal.

Disagreement existed between the parties' experts regarding the highest and best use of the subject property, specifically concerning the marketability and value of its transferable development rights (TDRs). The City's expert assessed the TDRs as unmarketable, attributing no value to them, while the claimant's expert identified 20,390 square feet of excess TDRs, valuing them at approximately $2,100,000 through a sales comparison approach, leading to a total property value of $7,100,000. On September 8, 2017, the Supreme Court awarded the claimant $5,549,000 for the property's taking, which included $3,959,000 for the land and buildings and $1,590,000 for the TDRs. An order was entered on November 2, 2017, in favor of the claimant, prompting an appeal by the City. The court's review of findings in condemnation cases is as extensive as the trial court's, allowing it to render judgments based on the facts presented. The measure of damages must reflect the property's fair market value at its highest and best use on the taking date, irrespective of current use, and must be supported by expert testimony or other evidence. The Supreme Court's valuation of the land and improvements was deemed appropriate, corroborated by the claimant's expert's testimony regarding the use of income multipliers in property valuation.

The City's expert did not challenge the appropriateness of using a gross income multiplier (GIM) for property valuation but disputed the claimant's expert's use of an effective GIM of 14, opting instead for a GIM of 10.5, which matched the value calculated by the Supreme Court. The Supreme Court's acknowledgment that the GIM averages provided by Massey Knakal Realty Services lacked specificity regarding rent-stabilized buildings did not warrant a total dismissal of this data. The court also rejected the City's expert's capitalization rate approach due to reliance on unreliable figures such as operating expenses. 

The Supreme Court's valuation of the subject property's transferable development rights (TDRs) at approximately $1,590,000 was unsupported by the record. The potential value of TDRs must consider the reasonable likelihood of the condemned property being combined with adjacent lots for optimal use. The claimant's expert indicated significant development in the surrounding area from 2006 to 2009 and speculated that adjacent vacant lots would have been developed had the condemnation not occurred. However, the expert provided no concrete evidence of any efforts to combine the properties or sell the TDRs before the condemnation. Additionally, there was no indication that the owners of adjacent lots were interested in purchasing the TDRs. The expert's claim of a potential sale was vague and lacked specifics. Consequently, the order was modified, reducing the claimant's award from $5,549,000 to $3,959,000 by removing the $1,590,000 valuation of the TDRs.