Connecticut Cases March 20, 2019: Pearl Enterprises, LLC v. City of Hartford

Case Description

UNPUBLISHED OPINION

OPINION

Arnold W. Aronson, Judge Trial Referee

The plaintiff, Pearl Enterprises, Inc., brings this real estate tax appeal challenging the valuation of plaintiff’s property located at 234 Pearl Street, in the city of Hartford (city) on the grand list of October 1, 2016. The city’s assessor determined that the fair market value of the subject property, on the grand list of October 1, 2016, was $ 197, 500.

The plaintiff’s appraiser, Patrick A. Lemp (Lemp), was of the opinion that the fair market value of the subject, as of October 1, 2016, was $ 35, 000. The city’s appraiser, Miles B. Andrews (Andrews), was of the opinion that the fair market value of the subject property, as of October 1, 2016, was $ 250, 000.

The subject property was acquired by the present owner, Pearl Enterprises, LLC, by a tax collector’s deed on February 7, 2013 through a public auction held on July 25, 2012. The plaintiff was the sole bidder at the bid price of $ 45, 000.

The subject property, built in the year 1900, is a three-story building containing 11, 725 square feet (SF) of gross building area. The site area contains 4, 117 SF or 0.0945 gross acres. The building occupies the whole lot. The building also has common building walls on the north and east side of the adjoining Goodwin Tower office building. "The northerly and easterly property lines are subject to an easement for footings, foundations or other underground supporting devices." (Defendant’s Exhibit A, p. 12.)

Andrews notes the history of the property, as follows.

"According to the property owner, the building was originally used as hall for a fraternal organization. At an unknown date[, ] it was converted for office use, and the current owner’s family occupied it as a law office from the mid-1950s. The interior was renovated in the late 1950s or early 1960s and a new open staircase connecting the first and second floors was built. The most recent work that is apparent to the building includes a membrane roof cover that probably dates from the 1980s and the installation of a new gas fired hot water boiler that appears to date from the late 1970s or early 1980s." (Defendant’s Exhibit A, p. 2.)

Lemp notes that "[t]he building is uninhabitable and in need of complete renovation. There is no sprinkler system and the building is not handicap accessible. Office use is not financially feasible given the repairs required for tenant occupancy versus current office rental rates ." (Emphasis in original.) (Plaintiff’s Exhibit 2, p. 5.)

According to the present owner, the building has been unoccupied since 2012 and is presently just a shell of a building. This observation is confirmed by Lemp who described this building as a dilapidated Class C office building that is in poor condition. See plaintiff’s Exhibit 2, p. 5.

Lemp was of the opinion that the highest and best use of the subject was as follows.

"It is not financially feasible to renovate the subject as an office building as current office rental rates do not support renovation costs. It is not financially feasible to renovate the subject into apartments, unless significant government funds are provided, given the limited size of the subject and ultimately the limited number of apartments. In conclusion, the highest and best use as improved is demolition of existing structure with future commercial development when rental rates support construction costs." (Plaintiff’s Exhibit 2, p. 5.)

In contrast to Lemp’s dire view of the subject, Andrews’ opinion of highest and best use of the subject is as follows.

"An adaptive reuse of the existing building, most likely for residential apartments is the most likely use of the subject building. The definition of highest and best use includes a test of financial feasibility. There is no specific proposal for the property that can be tested. Participants in the Hartford market are aware that the cost of completing a project typically exceeds its value upon completion, yet building shells continue to sell for renovation. The difference between cost and value can be covered by historic tax credits and loan subsidies, most often through the CRDA [Capitol Region Development Authority]." (Defendant’s Exhibit A, p. 16.)

Given Andrews’ opinion of the highest and best use of the subject, Andrews selected the Sales Comparison Approach to value the subject property and in doing so made the following comment: "The subject is a commercial building ‘shell’ that would be viewed by market participants as a candidate for redevelopment and adaptation to a new residential apartment use." (Defendant’s Exhibit A, p. 16.)

Following up on Lemp’s highest and best use of the subject property which took into consideration the demolition of the shell of the building, Lemp selected the sales of four parking lots, three of which were in the vicinity of the subject in the central business district (CBD). The fourth comparable was the taking of a parking lot by the city to supplement parking at the Dunkin’ Donuts baseball field. The sales of the four parking lots within three years of the revaluation date ran from a purchase price of $ 1, 500, 000 to $ 1, 780, 000. These four sales were substantially larger in land size than the subject. The only purpose of selecting these four sales would be to show the value of public parking spaces used in the downtown Hartford area. Otherwise, the selection of these four comparables could not be considered as comparable property to the subject as it existed on October 1, 2016.

Andrews’ comparables, on the other hand, were selected to support his highest and best use of the subject as a residential building with up to twelve apartments. Andrews used three comparables to support his highest and best use finding for apartment development.

36 Lewis Street sold on January 9, 2012 for $ 318, 000. This single tenant property consisted of 6, 742 SF of gross building area that was gutted by the purchaser. In 2015, the owner converted the building into six apartment units. See defendant’s Exhibit A, p. 22. The CRDA provided $ 300, 000 for construction financing. The total estimated cost was $ 1, 847, 000.

179 Allyn Street sold on November 18, 2013 for $ 1, 525, 000. This sale was a 69, 495 SF, multi-tenant professional building. Andrews reported that the original mortgage on the property was $ 10, 187, 500. See defendant’s Exhibit A, p. 24. The building was converted on the date of sale with the first floor used as a commercial unit and the upper five floors were residential units financed by CRDA with a $ 3, 250, 000 loan; a bank loan for $ 6, 637, 500 for the apartments and a bank loan of $ 300, 000 for the commercial unit.

28-30 High Street sold on May 31, 2016 for $ 1, 020, 000. This 5-story building, known as the "Lewtan" building had a gross building area of 29, 040 SF.

The problem here is that neither appraiser contemplates using the existing shell of a building as it presently stands. General Statutes § 12-117a defines "revaluation" or "revalue" to mean "to establish the present true and actual value of all real property in a town as of a specific date ." (Emphasis added.) In other words, the issue here is what was the fair market value of the subject property, as of October 1, 2016, in its present condition as an unusable shell of a building on a small, nonconforming building lot.

As noted in Underwood Typewriter Co. v. Hartford, 99 Conn. 329, 336-36, 122 A. 91 (1923), "the rule of assessment of property liable to taxation has for many years been fixed by the statute ... It prescribes that all taxable property shall be set in the owner’s list at its ‘present true and actual valuation.’ This language is plain and its meaning is unmistakable, and the provision is mandatory and unavoidable. For the purpose of taxation no valuation of any taxable property except its ‘present true and actual valuation’ is legal and no taxation is valid which does not strictly comply with the law. The duty imposed upon tax assessors by this law is to find the ‘present true and actual valuation of any property to be taxed ...’ ’’

The present owner has had the subject property on the market since 2012, and recognizing that without any offers or proposals to purchase, develop or joint venture, the determination of the present fair market value of the property, as of October 1, 2016, is most difficult.

As noted by the defendant in its 2/27/19 post-trial brief, p. 5, Andrews noted this difficulty.

"Mr. Andrews indicated at trial that investors purchase these buildings such as the subject property and then seek to craft a development plan. This is the opposite of normal behavior in economic market, but it is typical of the pattern of behavior in the subsidized market for historic building shells in Hartford. Unlike a normal market, renovation projects that require subsidies via historic credits are so complex that it often takes a period of years from development concept to commencement of construction, and the process of creating a viable development proposal for historic buildings leaves buyers with little time to conduct due diligence to a standard of confidence that is typical of ordinary economically viable investments."

The most that can be said for the subject is that it is located in the city’s central business district in an area of commercial buildings, hotels and apartment residences. Andrew notes in his appraisal report that the present owner pays $ 10, 270.50 yearly on an assessment of $ 138, 250. See defendant’s Exhibit A, p. 1. Without the present owner deriving any income from the use of the present building, and with no immediate prospects of selling or developing the building, clearly the present owner has established aggrievement and is entitled to relief.

The goal of any real estate tax appeal is to determine the fair market value of the assessed property on the last town-wide revaluation date. Ireland v. Wethersfield , 242 Conn. 550, 556, 698 A.2d 688 (1997). In deciding the issue of the fair market value of the subject property, the court "arrives at his [or her] own conclusions as to the value of land by weighing the opinion of the appraisers, the claims of the parties in light of all the circumstances in evidence bearing on value, and his [or her] ... own view of the property ..." (Internal quotation marks omitted.) Walgreen Eastern Co. v. West Hartford, 329 Conn. 484, 492, 187 A.3d 388 (2018).

With the city’s appraiser, Andrews, valuing the subject property as of the last revaluation date at $ 250, 000 based on comparables requiring speculative subsidized governmental financing and the present owner’s appraiser, Lemp, at $ 35, 000, based on the demolition of the subject and converting the land into a parking lot, there is justification to find the fair market value of the subject property to be $ 35, 000.

General Statutes § 12-117a provides as follows: "The court shall have the power to grant such relief as to justice and equity appertains, upon such terms and in such manner and form as appear equitable ..."

Given the circumstances of this case, an equitable resolution adopting the appraiser’s opinion of value that more approximately lends itself to present conditions, is preferable. The major difference between Lemp’s selection of a parking lot versus Andrews’ construction of a twelve-unit apartment building, is that the apartment building would require speculative and complex financing.

Therefore, as to count one, judgment may enter in favor of the plaintiff, finding that the fair market value of the subject property, as of October 1, 2016, to be $ 35, 000, without costs to either party.

As to count two, the court agrees with the defendant that no evidence has been introduced in these proceedings that supports the conclusion that the assessor was guilty of misfeasance, nonfeasance or was in disregard of duty or committed any illegal acts. Accordingly, judgment may enter in favor of the defendant as to count two, without costs to either party.