John Alan Sakon v. Town of Glastonbury (2010)

MEMORANDUM OF DECISION

The plaintiff, John Alan Sakon (Sakon), brings this real estate tax appeal contesting the valuation placed upon his two properties located in the town of Glastonbury (town) by the town's assessor for the Grand List of October 1, 2007.   The two properties are 131 Griswold Street (hereinafter the Griswold property) and 74 New London Turnpike (hereinafter the New London property).

As of the Grand List of October 1, 2007, the following fair market values were calculated for the Griswold property:

Town's assessor:  $1,332,500

Town's appraiser:  $1,100,000

Sean T. Hagearty (Hagearty)

Plaintiff's opinion of value:  $800,000 ¹

The Griswold property contains a 11,610-square-foot (SF) commercial building sitting on a 3.40-acre lot that is an irregularly-shaped rear parcel with approximately 51 SF of frontage.   As Hagearty notes, the Griswold property is accessed “by a paved driveway that runs along the Route 2 off-ramp for about 650 feet back to the parking area and the building;  site is level;  full utilities are available.”  (Defendant's Exhibit L, p. 1, of “Property and Valuation Summary.”)   Although the Griswold property is located in a Planned Travel zone where there are no “of right” uses and all potentially allowable uses require a special permit process (see defendant's Exhibit L, p. 1), the property is presently used as a church by a variance.

Although it is Hagearty's opinion that the highest and best use of the Griswold property is to assemble it with three other adjoining properties, he also considers the subject property as a standalone.   Hagearty describes the Griswold parcel as follows:

“The subject is an older commercial building dating back to about 1962 per the assessor's records.   It was originally a bowling alley.   For many years, the property was leased to Hitchcock Furniture.   Hitchcock vacated the subject about 5 years ago.   The subject is currently leased on a month to month basis to a local church, New Life Christian Fellowship, [which] moved into the subject in December of 2008.   The church's continued occupancy depends upon the timetable for the proposed redevelopment including the subject parcel.”   (Defendant's Exhibit L, p. 3 of introductory letter to Attorney Critton, dated June 25, 2010.)

Mr. Sakon, in describing the Griswold parcel, notes that the present structure is nearing the end of its useful life;  the roof leaks and there is water behind the walls requiring repairs every six months.   From Mr. Sakon's standpoint, no tenant wants to rent an old rundown property and a buyer would tear down the building.   Sakon further notes that the existing lease to the church does not support the actual value of the land or building.   Sakon's highest and best use for the subject would be to lease it to a retailer by either tearing down the building or gutting the building for renovations, both of which would be costly.

Hagearty, in contrast to Mr. Sakon's opinion of highest and best use, notes that “the market value of the site as improved still exceeds the market value of the underlying site for alternative development.   However, the overwhelming majority of the property's value does lie in the underlying site given the location and zoning as well as the fact that there is surplus land to permit an expansion of the building.   Therefore, the highest and best use of the site as improved, at least for the interim, is for the continued commercial use of the building on the site.”  (Defendant's Exhibit L, p. 4.)

Given Hagearty's opinion that the subject would not appeal to an investor but rather to an owner-occupant, and given Mr. Sakon's opinion that the subject is at the end of its physical and economic life where the building should be torn down or gutted, it is difficult to see a purchaser buying the subject under these present conditions, especially when the site itself is rear land with no visibility from Griswold Street.

Although Hagearty concluded that the highest and best use of the land and building is for commercial use, the purchaser would still have to obtain the approval of the zoning commission under the Planned Travel zone for any use of the property.   Such an approval appears to be insurmountable in the subject's present condition.   This is consistent with Hagearty's comment that “[m]ost buyers looking to acquire a site in Glastonbury have no choice but to consider acquiring improved properties and razing the existing improvements to facilitate redevelopment.   This bodes well for a property like the subject.”   (Defendant's Exhibit L, p. 9.)

Recognizing that Mr. Sakon presently rents the subject property to a church, which under the circumstances is not its highest and best use, and Hagearty's conclusion that “the market value of the site as improved still exceeds the market value of the underlying site for alternative development” (defendant's Exhibit L, p. 4.), credit has to be given to Hagearty's remark that “the most likely buyer for the subject on a standalone basis would be either an owner-occupant looking to reuse the subject building for a commercial use, or a developer/speculator who would seek to redevelop the subject site.”   (Defendant's Exhibit L, p. 4.)

Although the town argues that Mr. Sakon has not proved aggrievement as to the Griswold property, the fact that the town's appraiser Hagearty placed a fair market value on the subject property at $1,100,000, which is substantially below the assessor's valuation of $1,332,500, establishes that Mr. Sakon is aggrieved.

In a § 12-117a appeal, the taxpayer is allowed to call into question the assessor's valuation placed upon the taxpayer's property for assessment purposes.   However, in such an appeal, it is the taxpayer's burden to show that he or she has been aggrieved by the action of the board of assessment appeals (BAA) overassessing his or her property.   See J.C. Penney Corp. v. Manchester, 291 Conn. 838, 844, 970 A.2d 704 (2009).  “In this regard, [m]ere overvaluation is sufficient to justify redress under § 12-117a, and the court is not limited to a review of whether an assessment has been unreasonable or discriminatory or has resulted in substantial overvaluation ․” (Internal quotation marks omitted.)  Id.

In addition to Hagearty, Mr. Sakon placed the same valuation of $1,100,000 on the Griswold property when he appealed the assessor's valuation of $1,332,500 to the BAA for the Grand List of October 1, 2007.   See defendant's Exhibit P;  see also plaintiff's Exhibit 3. Despite Mr. Sakon's claim before the BAA, he now argues that the value of the Griswold property, as of October 1, 2007, is $800,000.   See also defendant's post-trial brief, dated October 12, 2010, p. 11.

Although Mr. Sakon based his BAA appeal on the fact that the Griswold property had a fair market value of $1,100,000, the charge to the court in a de novo appeal is not whether Mr. Sakon was correct in his BAA appeal, but what was the fair market value of the Griswold property as of October 1, 2007.   See Ireland v. Wethersfield, 242 Conn. 550, 556-59, 698 A.2d 888 (1997).

However, a review of Hagearty's opinion of value of $1,000,000, based on the income approach, is the more credible opinion.   See defendant's Exhibit L, p. 22.   Both Sakon and Hagearty recognize the difficulty in placing a value on the subject property as it is a standalone with numerous deficiencies attached to its site and improvements, including its location in a Planned Travel zone.

Therefore, it is difficult to find truly comparable sales.   However, Hagearty, recognizing the problems in determining the value of the subject, noted that the “market rent on an ‘as is' basis is [a] fairly subjective exercise as it is difficult to survey truly ‘comparable’ rental properties ․ In the end, a survey of commercial/retail space in town has been undertaken and appropriate adjustments will be made to reflect the subject's specific features.”   (Defendant's Exhibit L, p. 16.)

Independent of Sakon's admission as to the valuation of the Griswold property and considering the property itself as a standalone with numerous deficiencies, the court finds that Hagearty's income approach analysis most accurately indicates the Griswold property's fair market value.

Accordingly, as to 131 Griswold Street, the court accepts Hagearty's opinion of value using the income approach and finds that the fair market value of this property, as of October 1, 2007, was $1,000,000.

Turning to the second property located at 74 New London Turnpike, the following fair market values were calculated as of the October 1, 2007 Grand List:

Town's assessor:  $915,429

Town's appraiser Hagearty:  $875,000 (income approach)

$975,000 (market sales approach)

$935,000 ² (reconciled market value)

Plaintiff's opinion of value:  $730,000 ³ (income approach)

The proper rule of valuation has been set forth by the legislature in General Statutes § 12-63(a) as follows:  “The present true and actual value of land classified as farm land pursuant to section 12-107c, as forest land pursuant to section 12-107d, as open space land pursuant to section 12-107e, or as maritime heritage land pursuant to section 12-107g shall be based upon its current use without regard to neighborhood land use of a more intensive nature, provided in no event shall the present true and actual value of open space land be less than it would be if such open space land comprised a part of a tract or tracts of land classified as farm land pursuant to section 12-107c.   The present true and actual value of all other property shall be deemed by all assessors and [BAAs] to be the fair market value thereof and not its value at a forced or auction sale.”  (Emphasis added.)

Contrary to Mr. Sakon's contention that it is the leased fee of the subject that is being valued, the court is bound by the legislature's direction to value all real estate on its fair market value.   See § 12-63(a).

Mr. Sakon and James N. Sakonchick purchased the New London property by warranty deed, dated April 4, 2007, from the Charles Warner Company for a consideration of $1,000,000.   Mr. Sakon reported that the sale was a sale/leaseback with the lease at an above market rent paid by the seller plus the seller making a partial guarantee of the operating expenses on the non-leased areas.   See plaintiff's Exhibit 1, pp. 5-6.   Mr. Sakon considered the financial arrangements made with the sale to indicate that the sale was not an arms-length transaction made at market.

The New London property is a single-story office building on a hillside of approximately one-half acres with a full and finished walk-out basement built into the hillside containing a gross building area of 6,467 SF and a net rentable area of 6,183 SF. The entire upper floor of the subject was leased back to the seller at the time of sale.   The building is presently divided into five different suites ranging in size from 310 SF to 2,100 SF. All suites share a common bathroom.

In using the income approach, Mr. Sakon arrived at a net operating income (NOI) of $69,351 which is fairly close to the NOI determined by Hagearty at $72,015.   See defendant's Exhibit K, p. 9. As Mr. Sakon points out, the significant difference between his valuation and Hagearty's is the wide range between the vacancy/collection rate and capitalization rate.   Mr. Sakon listed the tenant income for the subject and arrived at a total net rental income of $86,455.   From this amount, Mr. Sakon deducted a vacancy/collection rate of 14%.   See plaintiff's Exhibit 1, p. 10.   Mr. Sakon's 14% vacancy/collection rate stands in sharp contrast to Hagearty's 5% vacancy/collection rate.

It is more credible for the court to accept Hagearty's finding of 5% vacancy/collection rate for the New London property based upon the actual vacancy rates at other office properties in Glastonbury's central business district as of October 1, 2007.   See defendant's Exhibit K, p. 6. Vacancies in this specific business area are more acceptable than Mr. Sakon's use of the structural vacancy rates for the suburban Hartford office market compiled by Integra Realty Resources in their publication IRR-Viewpoint;  Real Estate Value Trends 2007.   See plaintiff's Exhibit 1, p. 8.

With regard to the development of the cap rate, Mr. Sakon, using a band of investment analysis, concluded that a cap rate of 9.5% was appropriate.   See plaintiff's Exhibit 1, p. 9. Hagearty, on the other hand, selected a cap rate “based on a survey of overall rates extracted from local market sales, typical rates quoted in investor surveys and a band of investment analysis.   Based on a review of local market sales, and conversations with other area appraisers and brokers, going in capitalization rates for similar office properties were typically 6.00% to 9.00% as of October 2007.”  (Defendant's Exhibit K, p. 7.)

Although the court finds that Hagearty's process in the development of the cap rate was more comprehensive and, therefore, more credible than that arrived at by Mr. Sakon, the resulting cap rate of 8.60%, based on a band of investment analysis, as shown by Hagearty in defendant's Exhibit K, p. 8, is more relevant than his selection of an overall cap rate of 8.25%. In selecting a cap rate, Hagearty noted that since all of the leases were considered triple net expenses (i.e., the leases provide for the tenant to pay the real estate taxes, not the landlord), the cap rate was not adjusted for a tax factor.   See defendant's Exhibit K, p. 8.

Taking NOI of $72,015, as determined by Hagearty, with a cap rate of 8.60%, not adjusted for a tax factor, the court finds that the fair market value of 74 New London Turnpike, as of October 1, 2007, is $837,384.

Accordingly, judgment may enter in favor of the plaintiff finding that, as of the Grand List of October 1, 2007, the properties located at 131 Griswold Street and 74 New London Turnpike in Glastonbury had a fair market value of $1,000,000 and $837,384, respectively, without costs to either party.

Arnold W. Aronson

Judge Trial Referee

FOOTNOTES

FN1. Because Mr. Sakon is not currently a licensed appraiser in Connecticut, the town objects to Mr. Sakon acting as his own appraiser and to his providing opinions of value for the Griswold and New London properties.   However, the plaintiff is qualified to give his opinion of value as to his own properties.   See Porter v. Thrane, 98 Conn.App. 336, 341, 908 A.2d 1137 (2006).   In addition, in the 1990s, Mr. Sakon had extensive experience as a licensed general certified appraiser and as a real estate developer.   See, e.g., Kinsale, LLC v. Tombari, 95 Conn.App. 472, 477 n.5 (2006) (where court allowed witness to provide an opinion, noting that the witness's lack of credentials as a licensed certified appraiser would pertain to the weight of the witness's testimony)..  FN1. Because Mr. Sakon is not currently a licensed appraiser in Connecticut, the town objects to Mr. Sakon acting as his own appraiser and to his providing opinions of value for the Griswold and New London properties.   However, the plaintiff is qualified to give his opinion of value as to his own properties.   See Porter v. Thrane, 98 Conn.App. 336, 341, 908 A.2d 1137 (2006).   In addition, in the 1990s, Mr. Sakon had extensive experience as a licensed general certified appraiser and as a real estate developer.   See, e.g., Kinsale, LLC v. Tombari, 95 Conn.App. 472, 477 n.5 (2006) (where court allowed witness to provide an opinion, noting that the witness's lack of credentials as a licensed certified appraiser would pertain to the weight of the witness's testimony).

FN2. See defendant's Exhibit K, p. 2..  FN2. See defendant's Exhibit K, p. 2.

FN3. In his appraisal report dated June 29, 2010, Mr. Sakon estimated the fair market value of the New London property at $730,000 relying on the income approach.   However, in his executive summary, Mr. Sakon noted that the property rights being appraised was a leased fee.   See plaintiff's Exhibit 1, pp. 1-2..  FN3. In his appraisal report dated June 29, 2010, Mr. Sakon estimated the fair market value of the New London property at $730,000 relying on the income approach.   However, in his executive summary, Mr. Sakon noted that the property rights being appraised was a leased fee.   See plaintiff's Exhibit 1, pp. 1-2.

Aronson, Arnold W., J.T.R.