The Supreme Court, Richmond County (Hon. Wayne P. Saitta) recently issued a decision valuing wetlands located in Stated Island that were acquired as part of the New Creek Bluebelt Phase 3 project. The case is Matter of City of New York (New Creek Phase 3), Sup. Ct., Richmond Cty, Hon. Wayne P. Saitta, Index No., 4013/06.
The property at issue was acquired by the City on November 3, 2006. The total area taken was 45,208 square feet, which included a non-contiguous lot (lot 14) of approximately 5,203 feet.The property was located roughly between Hylan Boulevard,and Joyce Street, and between Stobe Avenue and New Creek. Almost the entire area consisted of wetlands, and the property was regulated as wetlands on the vesting date.
The trial was held on June 23, 2014. Prior to trial the parties stipulated to a regulated value of $248,600 and an unregulated value after deducting extraordinary costs of $4,552,000. The major issue at trial was the increment to be applied.
When valuing wetlands, a specific formula is applied: the regulated value of the land is subtracted from the unregulated value of the land, then an increment is calculated from the difference between these two values, and the increment is then added back into the regulated value. This increment represents what an investor would pay above the unregulated value when there is a possibility that the wetlands could be successfully challenged in court.
The City’s appraiser, Bob Sterling, did not use an increment because the City argued that investors do not purchase wetlands on Staten Island with the intention of challenging wetland regulations in order to develop the property. Sterling based this belief on the fact that he knew of no sales of wetlands in Staten Island where a buyer purchased designated wetlands and subsequently challenged the regulations as a regulatory taking.
The Court rejected this argument, noting that the longstanding rule in New York: “The realities of the market are that an investor would pay an increment to the regulated value of a property where there is a probability that the wetlands regulations could be successfully challenged.” Thus, in order to refute that longstanding rule, the City would need more than its appraiser’s testimony that he was unable to locate sales where buyers subsequently challenged wetlands regulations.
Claimant argued for a 75% increment. The court noted:
The increment is determined by the realities of the marketplace, which are that a knowledgeable buyer would not pay the full unregulated value of the property, but would adjust his purchased price to offset the cost in time and money of applying for a wetlands permit and challenging a denial of the permit as confiscatory. A buyer would pay only the value of the property as restricted, plus an increment representing its enhanced value at such future time if and when he successfully in (sic) nullifies the wetlands restrictions in court. (citations omitted).
The City offered a rebuttal report in which Mr. Sterling proffered a 32% increment based on his analysis of sales of undersized lots where a variance was granted by the New York City Board of Standards and Appeals to allow development with reduced side and front yards. He testified that this ratio reflected the difference between what a buyer would pay for a property on Staten Island which can be developed as of right and a property which can only be developed after an administrative or judicial process.
The Court rejected Sterling’s 32% increment because his methodology was in conflict with the rule in Berwick v State of New York (BerwickII), 159 AD2d 544 (2d Dept 1990) and Matter of City of New York, Staten Island Bluebelt Phase 2 (Fink), Index No. 4012/2004 (Sup Ct. Kings 2007). Sterling’s method impermissibly based the value of wetlands property on the unregulated value of the property rather than the regulated value.
The Court concluded that the 75% increment was appropriate in this case, largely based on the subject property’s proximity to Hyland Boulevard and commercial zoning. After applying the 75% increment to the difference between the unregulated and regulated values, and adding it back to the regulated value, the total damages came to $3,476,150, or $3,500,000, rounded. The advance payment paid by the City was $2,575,700.00.
Michael Rikon was the trial attorney for the Claimant.