Present: Carrico, C.J., Lacy, Hassell, Keenan, Koontz, and
Kinser, JJ., and Whiting, Senior Justice
SNYDER PLAZA PROPERTIES, INC.
v. Record No. 991306 OPINION BY JUSTICE BARBARA MILANO KEENAN
April 21, 2000
ADAMS OUTDOOR ADVERTISING, INC.
FROM THE CIRCUIT COURT OF THE CITY OF NORFOLK
Everett A. Martin, Jr., Judge
In this appeal of a declaratory judgment, we consider
whether the chancellor properly approved a report of a
commissioner in chancery that fixed the value of a leasehold
interest in a portion of a parcel of condemned property.
Snyder Plaza Properties, Inc. (Snyder) owned a parcel of
land, which was used as a parking lot and was bounded by St.
Paul's Boulevard, City Hall Avenue, and Plume Street in the
"downtown financial district" of Norfolk. Since 1953, Snyder
had leased a portion of the land to Adams Outdoor Advertising,
Inc. (Adams), or its predecessor, to permit the installation and
maintenance of four 12' X 25' billboard signs. Adams, in turn,
engaged in the business of renting space and installing
advertising on the billboard signs.
In July 1995, the City of Norfolk (the City) exercised its
power of eminent domain and condemned Snyder's property. Snyder
and the City reached a settlement agreement concerning the value
of the property taken. The City agreed to pay Snyder $2.4
million "plus up to . . . ($38,000) to pay one-half (½) of
Snyder's settlement with Adams Outdoor Advertising."
At the time of the condemnation, Snyder and Adams had in
effect two written leases involving the four billboard signs.
The leases, dated January 3, 1990, were each for a term of three
years with a provision for an automatic renewal for a term of
five years (collectively, the initial terms). The leases stated
that they "shall continue year-to-year thereafter unless
terminated by either party," and that Snyder reserved the right
to cancel the leases "if the property is sold or developed." In
paragraph 9, the leases provided:
In the event of condemnation or threat of
condemnation, Lessee [Adams] shall have the right to
timely participate in any condemnation award or
settlement to the extent of Lessee's damage for the
loss of revenue of the structure; the costs of removal
from the above-described premises; replacement costs;
and, the loss of its leasehold interest and other
related damages.
After Snyder's condemnation settlement with the City,
Adams filed this declaratory judgment suit against Snyder,
seeking a determination of the amount of damages to which
Adams was entitled as a result of the condemnation. The
trial court referred the matter to a commissioner in
chancery, who was directed to receive evidence and make a
recommendation regarding the damages due to Adams.
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At an evidentiary hearing, the commissioner heard
testimony from three real estate appraisers concerning the
value of Adams' leasehold interest. 1 Adams' principal
expert witness was Donald T. Sutte, a licensed real estate
appraiser, who testified that he used two types of analyses
to determine the leasehold's value, a sales comparison
approach and an income approach. Under the sales
comparison approach, Sutte determined that the leasehold
value was $112,300. Under the income approach, he
determined that the value of Adams' leasehold interest was
$98,800.
Sutte stated that the sales comparison approach was
the "most valid" method of appraising Adams' interest, and
explained that this method of valuation was commonly used
throughout the outdoor advertising industry. Using that
method, Sutte examined eight recent sales of similar
leasehold interests involving billboard signs located in a
number of other states. He divided the leasehold sale
price in each transaction by the annual gross income
generated by the billboard signs involved in the sale, to
arrive at a "gross income multiplier" for each transaction.
1
Adams did not present evidence concerning any other element
of damage.
3
The range of "gross income multiplier[s]" resulting
from the eight comparison sales was 2.97 to 7.04. Sutte
testified that a "gross income multiplier" range of 3.0 to
6.0 has remained fairly constant in the outdoor advertising
industry over the past ten years. Based on the desirable
location of the billboard signs at issue, their long
history at that location, and the lack of any other
billboard signs in the general area, Sutte used a "gross
income multiplier" of 4.0 to value Adams' leasehold
interest.
Sutte next determined the annual "economic rent" of
the billboard signs. He explained that this term
represents the annual rent that the billboard signs should
command in the marketplace. He calculated this amount by
including such factors as each sign's location, rental
history, and daily effective circulation. Sutte concluded
that the annual economic rent of the billboard signs was
$31,200. From that amount, he subtracted a 10% figure for
vacancy and collection losses to arrive at the effective
gross annual income of the billboard signs, which he
calculated at $28,080. Sutte multiplied this amount of
effective gross annual income by the "gross income
multiplier" of 4.0 to conclude that Adams' leasehold
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interest in the subject billboard signs had a market value
of $112,300.
Sutte testified that although only 30 months remained
on the initial terms of Adams' leases with Snyder at the
time of the condemnation, there was "no reason to believe"
that the leases would have been terminated had the property
not been condemned. He explained that all the national
sales he used as comparisons involved the sale of similar
leasehold interests, and that the risk of termination of
the leases at issue was factored into the "gross income
multiplier" he used to arrive at his valuation.
Under his alternative method, the income approach to
value, Sutte subtracted sign vacancy and collection losses
from the billboard signs' annual economic rent of $31,200
to reach the effective gross annual income figure of
$28,080. From this annual gross income amount, he
subtracted operating expenses to yield a net annual
operating income of $14,321. He applied a capitalization
rate of 14.5% to the "net operating income" amount to reach
his leasehold valuation of $98,800.
Adams presented the testimony of another licensed real
estate appraiser, Gregory A. Hanson, who used the sales
comparison approach to determine the value of Adams'
leasehold interest. Hanson agreed with Sutte that this
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method of valuation was commonly used in the outdoor
advertising industry. Applying a "gross income multiplier"
of 3.4 to his calculation that the billboard signs had an
annual gross income of $24,281, Hanson concluded that
Adams' leasehold interest had a value of approximately
$83,000.
Hanson explained that the billboard signs at issue are
no longer a permitted use under the existing zoning
classification of Snyder's property and, thus, are a non-
conforming use of the property. Under the terms of the
leases, Adams owned the billboard signs and retained the
right to remove them. Hanson testified that if Snyder had
terminated its leases with Adams, and Adams had removed the
billboard signs, Snyder would have been unable to replace
them. Since continuation of the leases would have been
"beneficial" to both Snyder and Adams, Hanson stated that
he had "no reason to assume" that the leases would have
been cancelled at the end of 30 months.
Snyder presented the testimony of a licensed real
estate appraiser, Bruce F. Hatfield, who stated that in his
opinion, the fair market value of Adams' leasehold interest
was $21,500. Hatfield arrived at this sum by multiplying
the net monthly income from the billboard signs, which he
calculated at $436, by the number of months remaining on
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the leases, and then adding three years of "possible"
renewal income and deducting the cost of removing the
signs.
Hatfield acknowledged that he had very limited
experience in appraising leasehold interests in billboard
signs. He also stated that he was not aware that the
billboard signs at issue had been located on the Snyder
property since 1953. Hatfield testified that he considered
it likely that the leases would have been renewed for as
much as three years beyond the initial terms. However, he
also concluded that the "demographics of downtown Norfolk,
though, would dictate that sometime within a five-year
period this property would fall to development or be sold."
The commissioner issued a report in which he applied a
variation of the income approach to reach his conclusion
that the present value of Adams' leasehold interest on the
date of condemnation was $61,731.05. The commissioner
arrived at this sum by incorporating Sutte's calculations
of the billboard signs' annual economic rent, annual gross
income, and annual net income. The commissioner divided
the billboard signs' annual net income of $14,321 by 12 to
determine a "Monthly Net Sign Rental" amount of $1,193.
The commissioner multiplied this monthly income figure by
60 months, which represented the "Remaining Term of Lease
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(31 months) and probable renewal (29 months)," and
determined a "Total Income for Sign Rental" of $71,508.
The commissioner discounted this "total income" figure to
reflect the present value of Adams' leasehold interest,
which he fixed at $61,731.05.
Both Snyder and Adams filed exceptions to the
commissioner's report, challenging the method adopted by the
commissioner in determining the value of Adams' leasehold
interest. The chancellor overruled both parties' exceptions and
entered judgment in favor of Adams in the amount recommended by
the commissioner. Snyder appeals from the final judgment and
Adams assigns cross-error.
On appeal of a chancellor's decree approving a
commissioner's report, we apply an established standard of
review. A decree of this nature will be affirmed unless it is
plainly wrong or without evidence to support it. Lansdowne Dev.
Co. v. Xerox Realty Corp., 257 Va. 392, 402 n.5, 514 S.E.2d 157,
162 n.5 (1999); Lim v. Choi, 256 Va. 167, 171, 501 S.E.2d 141,
143 (1998).
Although a commissioner's report does not carry the weight
of a jury verdict, Code § 8.01-610, a chancellor should sustain
the report if the evidence supports the commissioner's findings.
Lim, 256 Va. at 171, 501 S.E.2d at 143; Chesapeake Builders,
Inc. v. Lee, 254 Va. 294, 299, 492 S.E.2d 141, 144 (1997);
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Morris v. United Virginia Bank, 237 Va. 331, 337-38, 377 S.E.2d
611, 614 (1989). This rule applies with particular force to the
report's factual findings that are based on evidence that the
commissioner heard ore tenus, but does not apply to pure
conclusions of law contained in the report. Id. On appellate
review, the commissioner's findings of fact that have been
confirmed by the chancellor will be reversed only if they are
plainly wrong or without evidence to support them. Moore &
Moore Gen. Contractors, Inc. v. Basepoint, Inc., 253 Va. 304,
306, 485 S.E.2d 131, 132 (1997); Cooper v. Cooper, 249 Va. 511,
518, 457 S.E.2d 88, 92 (1995).
In its first three assignments of error, Snyder essentially
contends that the commissioner erred in including in his
valuation calculation an amount of lost income for 29 months
beyond the initial terms of the parties' leases. Snyder argues
that since in a condemnation proceeding, a lessee generally is
entitled to compensation only for the value of any remaining
term of a lease, the commissioner was plainly wrong in
considering a "mere expectation of renewal" in fixing the value
of Adams' leasehold interest. We disagree with Snyder's
arguments.
The commissioner's decision to calculate Adams' lost income
over a period of 60 months was not plainly wrong or without
evidentiary support. That decision was supported by the
9
language of the leases, the evidence concerning factors peculiar
to the outdoor advertising industry, and the opinions of the
three expert witnesses that it was unlikely that the leases
would have terminated at the end of their initial terms.
The lease language provided that the leases "shall continue
year-to-year [after the initial terms] unless terminated by
either party." Donald Sutte explained that this type of lease,
which provided an initial term of years followed by renewal
options that included a termination clause in the event the land
is sold or developed, is "typical" in the outdoor advertising
industry, and that leases containing such provisions are bought
and sold routinely on the open market.
The commissioner was entitled to consider these renewal
provisions in his valuation calculation, based on his factual
finding that "there is a good likelihood that the leases would
[have] be[en] renewed until the site was converted to develop
office buildings, multifamily high rises and the like. Mr.
Hatfield saw that day to be no more than five (5) years from the
date of the taking." The commissioner noted that the billboard
signs had been located on Snyder's property for several decades.
He also observed that Snyder's own expert had testified that it
was likely that the leases would have "roll[ed] over" for
another two or three years beyond the period remaining on the
initial terms. We conclude that this testimony and evidence
10
supports the commissioner's decision to calculate Adams' lost
income over a 60-month period. 2
Snyder next asserts that the commissioner erred in
admitting testimony that the annual economic, or market, rent of
the billboard signs was $31,200, when the actual annual rent was
$24,282. Snyder also contends that the commissioner's use of
the economic rent figure was inappropriate, alleging that Sutte
and Hanson calculated that amount based on "fee simple interest
rather than leasehold interest." We find no merit in these
arguments.
Initially, we observe that Snyder is incorrect in its
assertion that Sutte and Hanson calculated annual economic rent
"based on a fee simple interest." After Snyder raised this
objection during Sutte's testimony at the commissioner's
hearing, Sutte restated the fact that his calculations were
based on his appraisal of Adams' leasehold interest. Hanson
2
Snyder also alleges that the chancellor erroneously
accorded credibility to testimony from Sutte and Hanson that
"there was no difference between the leasehold interest and the
fee simple interest of the plaintiff." In addition, Snyder
asserts that the chancellor erred when he "permitted evidence of
national sales of outdoor sign companies outside of Virginia as
comparable[] to a leasehold interest in this particular case."
These allegations inaccurately characterize the testimony of
Sutte and Hanson, as well as the evidence of comparable sales
presented to the commissioner. Moreover, we discern no basis
for concluding that either the chancellor or the commissioner
based their calculation of Adams' damages on such evidence or
theories.
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likewise testified that he appraised the value of the leasehold
interest.
We also disagree with Snyder's assertion that the
commissioner erred in admitting and ultimately adopting the
expert testimony concerning the economic rent of the billboard
signs. We previously have recognized the distinction between
economic rent and actual contract rent in the valuation of a
leasehold interest in condemned property. In Exxon Corp. v. M &
Q Holding Corp., 221 Va. 274, 269 S.E.2d 371 (1980), we
considered a trial court's ruling in a condemnation proceeding
denying a lessee recovery of the value of its leasehold interest
in the condemned property.
In that case, Exxon Corporation, which had operated a
gasoline station on the condemned property, presented two
witnesses at the condemnation proceeding who testified
concerning the value of its leasehold interest. The experts
applied a methodology that in part used the economic, or market,
rent of the leased parcel to obtain the differential amount
above Exxon's actual contract rent that Exxon lost as a result
of the condemnation. 221 Va. at 281, 269 S.E.2d at 376-77. In
reversing the trial court's judgment denying Exxon the value of
its leasehold interest, we noted that the valuation method used
by Exxon's appraisers had been applied previously in this and
other jurisdictions. 221 Va. at 280-82, 269 S.E.2d at 375-77.
12
In the present case, we conclude that the commissioner did
not err in accepting Adams' expert testimony concerning the
economic rent of the billboard signs in valuing the leasehold
interest. Sutte explained, in considerable detail that we need
not repeat, the factors he considered in calculating the
economic, or market, rent generated by the billboard signs. The
commissioner, in his role as fact-finder, found that Sutte's
economic rent figure was the most accurate reflection of the
billboard signs' value to Adams, and the chancellor confirmed
this finding. This conclusion is supported by the evidence and
is not plainly wrong.
Snyder also argues that the commissioner erred in
prohibiting Louis D. Snyder, the president and part owner of
Snyder Plaza Properties, Inc., from testifying regarding his
opinion of the value of Adams' leasehold interest. The
commissioner based his ruling on Snyder's failure to identify
Louis Snyder as an expert witness on the subject of valuation of
the leasehold interest, in response to interrogatories
propounded by Adams. Snyder argues that Louis Snyder, as an
"owner," was qualified to express a lay opinion regarding the
value of the leasehold interest, and that Snyder had no
obligation to list him as an expert witness in response to
Adams' interrogatories. We disagree with Snyder's argument.
13
We have recognized the general rule that an owner of
property is competent and qualified to render a lay opinion
regarding the value of that property. Haynes v. Glenn, 197 Va.
746, 750, 91 S.E.2d 433, 436 (1956); see Parker v. Commonwealth,
254 Va. 118, 121, 489 S.E.2d 482, 483 (1997); Walls v.
Commonwealth, 248 Va. 480, 482, 450 S.E.2d 363, 364-65 (1994).
This rule does not apply here, however, because Louis Snyder was
not the owner of Adams' leasehold interest, which was the
property about which he sought to state an opinion.
Snyder, citing Kerr v. Clinchfield Coal Corporation, 169
Va. 149, 192 S.E. 741 (1937), asserts, nevertheless, that he was
competent to testify as a lay witness. In Kerr, we recited the
general principle that a witness, who is not a true expert, may
give evidence regarding the value of real estate based on a
demonstrated acquaintance with the property at issue or with
properties of like general character and location. Id. at 156,
192 S.E. at 743. In the present case, however, Snyder made no
claim that Louis Snyder had any knowledge concerning leasehold
interests in the outdoor advertising industry or the type of
leasehold interest at issue. Therefore, we conclude that the
commissioner did not abuse his discretion in excluding Louis
Snyder's proposed valuation testimony.
Adams assigns cross-error to the chancellor's confirmation
of the valuation method used by the commissioner. Adams argues
14
that the commissioner and the chancellor should have applied the
sales comparison approach using "gross income multipliers,"
instead of using an income approach. We disagree with Adams'
argument, because Adams' own appraiser, Sutte, testified that an
income approach was an acceptable method of valuing a leasehold
interest, although he preferred a sales comparison approach of
valuation. The commissioner and chancellor were not obligated
to accept Sutte's evaluation of the merits of the two methods.
Since the record contains evidence supporting the method used by
the commissioner, we conclude that there is no error in the
chancellor's decision confirming the use of that method. Thus,
we hold that the chancellor did not err in approving the
commissioner's report and in entering judgment in accordance
with the commissioner's recommendation.
For these reasons, we will affirm the chancellor's
judgment.
Affirmed.
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