Sunday, September 25, 2016

Eminent domain valuation that accepted potential rezoning is upheld in appeals court

An important Atlantic Yards eminent domain valuation has just been validated by an appellate court. I wrote in May 2014 how a condemnation judge, in valuing and empty lot off Atlantic Avenue within the project footprint, denied the state's claim that there would have been no rezoning.

Kings County Supreme Court Justice Wayne Saitta agreed with the property owner's argument that the site, without the project, could have become a 12-story hotel, concluding, "Most probably, the entire M1-1 [one-story manufacturing] district in the Atlantic Yards footprint would have been upzoned."

Why is this important? Because Empire State Development Corporation (aka Empire State Development, or ESD), in the 2006 Atlantic Yards environmental review, claimed the project site would not "experience substantial change in the future without the proposed project... due to the existence of the open rail yard and the low-density industrial zoning regulations."

When the very reasonable possibility of a rezoning was raised, the state authority stonewalled, claiming, "While the City, if it desired, could rezone the project site, it has not."

The original case

730 Equity Corp. v New York State Urban Dev. Corp. involved an empty lot on Block 1120, Lot 35, at 730-740 Atlantic Avenue just west of Carlton Avenue. It juts into the below-grade Vanderbilt Yard.


Following that conclusion, Saitta rejected the state's claim that the property was barely worth $2 million as a gas station, and instead valued it at nearly $9.2 million, far less than the $20.6 million that the owner sought but still a major gain.

As I wrote, the developer, which pays for the land, likely still got a good deal, since the property will later be part of a plot for a 460-foot tower with 733,810 square feet, six larger in bulk than the hotel

The appeal

In a recently released appellate decision, judges unanimously rejected the appeal by ESD, the state authority overseeing/shepherding the project, including condemnation. (The state's lawyers were from Berger & Webb; the property owner's from Goldstein, Rikon, Rikon & Houghton.)

The decision notes more details about the valuation:
The court made certain adjustments to the claimant's appraisal, including the deduction of $2,792,576 in extraordinary costs related to a need to excavate and replace unsuitable soils and the costs of LIRR approvals and monitoring, on which ESDC had provided expert evidence. The Supreme Court determined that just compensation for the taking of the property was $9,186,000. Judgment was entered in favor of the claimant and against ESDC in the principal sum of $6,906,000, representing the valuation of the property less an advance payment of $2,280,000. 
While courts typically are limited to assessing the uses permitted by current zoning, the judges said, "when there is a reasonable probability of rezoning, some adjustment must be made to the value of the property to reflect that fact."

The trial court "properly determined" that reasonable probability of rezoning, the appellate judges wrote:
 Contrary to ESDC's contention, the court's failure to delineate the exact boundaries of a probable rezoning did not undermine its finding that the property would probably [*2]have been rezoned absent the project. The court's findings that many of the buildings in the immediate area had been converted to commercial and residential use, that New York City policy was to rezone underutilized industrial sites to allow for commercial or residential development, and that a zoning district with a FAR of 6 would be in scale to this portion of Atlantic Avenue were supported by the record.
The court properly distinguished the Atlantic Avenue corridor from lots on the more narrow Pacific Street, which are more functionally part of Prospect Heights than the subject property. 
The judges also rejected the claimant's effort to stop the trial court's "deduction of extraordinary costs to account for excavation and replacement of unsuitable soils, with related excavation protection, underpinning and pile foundation, and LIRR costs."

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