MIBAR, LLC VS. ELIZABETH CITY (TAX COURT OF NEW JERSEY)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2542-16T2

MIBAR, LLC,

Plaintiff-Appellant,

v.

ELIZABETH CITY,

Defendant-Respondent.

_________________________________

Submitted January 24, 2018 – Decided July 10, 2018

Before Judges Alvarez and Nugent.

On appeal from the Tax Court of New Jersey,
Docket No. 014691-2013.

Schneck Law Group, LLC, attorneys for
appellant (Michael I. Schneck, on the briefs).

Blau & Blau, attorneys for respondent (Robert
D. Blau, on the brief).

PER CURIAM

Plaintiff, Mibar, LLC, challenges the 2013 property tax

assessment of its commercial property in Elizabeth City

("plaintiff's property" or "the property"). After unsuccessfully

challenging the original assessment of $100,000 — $68,600 for the
land and $31,400 for improvements — before the Union County Board

of Taxation, plaintiff filed a complaint with the Tax Court seeking

review of the Tax Board's judgment. The Tax Court affirmed the

assessment. In doing so, the court made material findings of fact

that were unsupported by the record. For that reason, we reverse

the Tax Court judgment and remand for a new trial.

During the trial, plaintiff's expert, a State Certified

General Real Estate Appraiser, described plaintiff's property as

a 2040 square foot, freestanding fast food facility situated on a

.2 acre corner lot in a "good retail strip." The property is

"headed by a Dunkin Donuts." The interior finish is typical of a

fast food or Dunkin Donuts facility with tiled floors, drywalls,

and suspended ceiling. It is heated and air conditioned by forced

hot air and a central air conditioning system. The expert opined

the best use of the property was a fast food facility.

The expert also opined the income approach was the most

appropriate for appraising the property. In order to provide an

estimate of the property based on an income approach, the expert

employed the following methodology. First, he determined the

market income plaintiff's property would produce as of October 1

of the pre-tax year. Next, he computed deductions based on vacancy

and credit loss. He then made adjustments for the property owner's

expenses: management fees, leasing commissions, and a reserve for

2 A-2542-16T2
replacement over time of structural components. Last, the expert

derived a ratio known as the capitalization rate, which he

explained was "a rate that converts net income to an indication

of market value."

To estimate the property's market income, the expert analyzed

five "comparable rentals of similar typed properties." Two of the

comparables were from other counties. The three comparables in

Union County included one fast food facility in Scotch Plains and

two fast food facilities in the same shopping center in New

Providence.

Because the Union County comparables were newer than

plaintiff's property, the expert made a downward "quality

adjustment" concerning plaintiff's property of 7.5 percent. The

expert made no other adjustments concerning plaintiff's property.

He concluded the market rent for plaintiff's 2040 square foot

property was thirty dollars per square foot for a potential gross

income of $61,200. Deducting expenses resulted in a net income

of $47,920. The expert derived a capitalization rate of 7.8

percent, which, when applied to the net income, resulted in a

market value of $614,358. The expert rounded this value to

$614,000. Thus, the expert concluded plaintiff's property's

market value as of October 1, 2012, the pre-tax year, was $614,000.

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The tax assessment on a property of that value was $82,000, $18,000

less than the $100,000 Board of Taxation judgment.

Following cross-examination, during re-direct, the expert

testified there was no difference in value between a standalone

facility and similar attached facilities in strip malls, at least

with respect to fast food facilities. He explained that because

fast food establishments are generally small facilities, there is

"no difference in the standalone or attached units."

The court asked the expert about the basis for this opinion.

The expert explained he based his opinion on his analysis of

standalone rentals of fast foods. He also explained the subject

property, though a standalone, was on a very small corner of a

very small lot. In addition, the lot is adjacent to a neighborhood

shopping center so if one did not look closely one would assume

the property was part of the shopping center. The expert added:

[S]o it's not to say there may not be a single
tenanted standalone fast food somewhere that
would garner a higher rental for a number of
reasons, including location and . . . other
things. But in consideration of this
particular subject property and its physical
characteristics in comparison to the
comparable rentals I used . . . very, very
comparable and [I] don't think an adjustment
at all would be required for being standalone
or not.

The expert also opined "the draw of the neighborhood shopping

center component more than balances out any corner location that

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the subject [property] would have on a . . . tertiary commercial

road."

With three exceptions, the Tax Court accepted the expert's

testimony. First, the court disregarded the two comparables

outside Union County because they were "not necessarily indicative

of the fair market value of the fast food restaurant within the

Union County corridors."

Next, the court rejected the expert's 7.5 percent quality

adjustment on one of the remaining comparables. It explained:

The court has some familiarity with that
subject property from other tax appeal matters
and does not find . . . based upon the
testimony of the appraiser . . . nor looking
at the pictures that were presented before the
court . . . that that subject property
warrants a superior quality adjustment of 7.5
percent.

Last, the court determined a standalone establishment

warranted a higher rental value than fast food restaurants that

did not stand alone. The court explained:

[T]he court has some concerns based on the
court's knowledge that . . . generally in the
fast food marketplace in certain fast food
vendors[,] . . . a standalone establishment
warrants a higher rental value. And, thus,
the court is going to apply a [five] percent
adjustment upwards to [the Union County]
comparable rental[s] . . . to account for what
the court has knowledge of as the fact that
. . . that the subject property is a standalone
property, and [the Union County] comparable
rentals . . . are not standalone properties,

5 A-2542-16T2
 and that in the marketplace certain vendors
and certain lessees require standing fast food
marketplace . . . because of its visibility
and specifically the visibility of this
subject property on a corner lot.

As a result of the adjustments it made, the court determined

thirty-two dollars per square foot was an appropriate value for

plaintiff's property. Thus, under the court's analysis, the net

operating income for the property was $51,114. The court accepted

plaintiff's appraiser's capitalization rate. Applying the

capitalization rate to the court's determination of net operating

income resulted in a market value of plaintiff's property of

$655,300 as of October 1, 2012. The court explained:

The subject property's assessment for the
2013 year was $100,000. Thus, the
mathematical formula . . . involves taking the
$100,000 assessment, dividing it by the
$655,300 value, which determines the ratio of
.1526 for the subject property. Taking the
determined fair market value[,] . . . the
ratio is determined by applying the assessment
to the . . . court's determined fair market
value, the court concludes that the .1526
falls within the lower and upper limits
established by . . . the City of Elizabeth for
the 2013 tax year, the lower limit being 11.35
percent, the upper limit being 15.35 percent.

The court thus concluded plaintiff was not entitled to relief.

Plaintiff appealed from the order the judge entered following his

decision.

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 On appeal, plaintiff argues that when the court rejected the

expert's 7.5 percent negative adjustment for one of the

comparables, the judge relied upon facts outside the record.

Plaintiff also argues when the judge relied upon his "knowledge

that . . . generally in the fast food market place and certain

fast food vendors . . . a standalone establishment warrants a

higher rental value," it did so without any evidentiary support

in the record. Last, plaintiff contends the City of Elizabeth's

attorney's conduct prejudiced plaintiff at trial when the attorney

questioned the expert based on assumed facts not in evidence and

repeatedly referred to evidence not in the record. According to

plaintiff, the cumulative violation of the Rules of Evidence

warrants reversal of the tax court's judgment.

The City of Elizabeth counters there is substantial evidence

in the record to support the tax court's determination of market

value. The City asserts the judge's five percent upward adjustment

because plaintiff's property was a standalone facility was

properly based on the judge's experience and knowledge. In fact,

the City asserts, if the judge had a subjective belief an

adjustment was necessary, the judge was duty bound to make the

appropriate judgment. The City contends no conduct on the part

of the City's attorney prejudiced plaintiff.

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 An appellate court's review of a Tax Court decision is

deferential. Estate of Taylor v. Dir., Div. of Taxation, 422 N.J.

Super. 336, 341 (App. Div. 2011). This is because "judges

presiding in the Tax Court have special expertise." Glenpointe

Assocs. v. Twp. of Teaneck, 241 N.J. Super. 37, 46 (App. Div.

1990). Thus, a "[t]ax [c]ourt judge's findings will not be

disturbed unless we conclude they are arbitrary or lack substantial

evidential support in the record." UPSCO v. Dir., Div. of

Taxation, 430 N.J. Super. 1, 7-8 (App. Div. 2013) (citing Yilmaz,

Inc. v. Dir. Div. of Taxation, 390 N.J. Super. 435, 443 (App. Div.

2007)). In contrast, we review a Tax Court's legal determinations

de novo. Id. at 8.

"The Tax Court has the duty to apply its own judgment to

valuation data submitted by experts in order to arrive at true

value." Glenpointe Assoc., 241 N.J. Super. at 46 (citing Warren

Tp. v. Suffness, 225 N.J. Super. 399, 414 (App. Div. 1988)).

Nonetheless, a "Tax Court's right to make an independent assessment

is not boundless; it must be based on evidence before it and data

that are properly at its disposal." Ibid. (citing F.M.C. Stores

Co. v. Borough of Morris Plains, 100 N.J. 418, 430 (1985)). A Tax

Court "must not arbitrarily assign a value to the property which

is not supported in the record." Ibid. (citing Warren Tp., 225

N.J. Super. at 414).

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 Here, the Tax Court judge made a determination based on his

"knowledge that . . . generally in the fast food market place ...

a standalone establishment warrants a higher rental value." Based

on that general proposition, and without any evidence in the record

to support either it or its application to the particular facts

before it, the Tax Court applied a five percent upward adjustment

to the Union County comparables.

Likewise, the court appeared to rely on its own familiarity

with a comparable and rejected a 7.5 percent quality adjustment

for the comparable. Although the court also referenced photographs

in the record, it is not clear the court would have made the same

determination without applying its personal assessment of the

property.

Although the Tax Court had the right to reject plaintiff's

expert's opinion, and though the court – as defendant suggests –

had the duty to apply its own judgment to valuation data submitted

by the expert – the court did not have the right to make an

independent assessment devoid of evidentiary support. For that

reason, we reverse the Tax Court judgment and remand for a new

trial.

In view of our disposition of these arguments, we need not

address plaintiff's argument that counsel for the City referred

to evidence not before the court. Certainly, such references are

9 A-2542-16T2
unlikely to affect a court's decision, but we presume, as in any

case, that during the remand hearing all counsel will confine

themselves to presenting a case based on the evidence properly

admitted during the hearing.

Reversed and remanded. We do not retain jurisdiction.

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