DECISION AFTER TRIAL

This is a consolidated proceeding under Real Property Tax Law Article 7 to review the assessments on a number of lots which collectively comprise a portion of Roosevelt Field, a major regional shopping center within Nassau County. The tax years under review are 2005/06 - 2007/08 inclusive. The parties have stipulated that the ratios of assessment to fair market value are .935% as of tax status date January 2, 2004 (2005/06 tax year), .935% as of tax status date January 2, 2005 (2006/07 tax year), and .965% as of tax status date January 2, 2006 (2007/08 tax year).

The parties have also cooperated in providing the Court with an item by item comparison of the significant issues in which the parties are not in agreement, and the following schedule, drawing in information supplied by the parties, reflects those areas of disagreement which the Court must consider:

TAX YEARPETITIONERRESPONDENT

The parcels of land that make up the "Mall" are actually separate tax lots. The mall is located within three separate taxing authorities. Bloomingdale's, Penney's, Macy's and Dick's are all assessed separately. The market values of those individual parcels are not involved in this proceeding. What is being contested is the assessment of Nordstrom's and the in line stores.

The matter was tried before the Court intermittently over approximately five days. The assessment for each year under review enjoys a presumption of validity. The Petitioner must produce substantial evidence to overcome the presumption. Matter of FMC Corp. v. Unmack, 92 NY2d 179, 187 (1998). In the context of a tax certiorari proceeding, it is sufficient to overcome the presumption if the Petitioner demonstrates the existence of a valid and credible dispute as to value, typically in the form of a " . . .detailed, competent appraisal based on standard, aaccepted appraisal techniques and prepared by a qualified appraiser". Matter of Niagara Mohawk Power Corp. v. Assessor of the Town of Geddes, 92 NY2d 192, 196 (1998). The ultimate strength, credibility and persuasiveness are not germane for the threshold inquiry. The Court's inquiry is limited to a determination of whether the documentary and testimonial basis proferred by the Petitioner is based upon sound theory and objective data. Id.

In this case the Petitioner has submitted an appraisal report and testimony from Steven Deutsch of Goodman-Marks. He is a New York State Certified Appraiser with significant experience in appraising commercial properties. The Court determines that both the appraisal report and the testimony adduced at trial are based upon sound theory and objective data, and the Petitioner has therefore overcome the presumption of validity. The Petitioner now has the burden of establishing, by a preponderance of the evidence, that the Respondents' assessment is excessive, or unequal.

Mr. Steven Deutsch, of Goodman Marks on behalf of the Petitioner, and Mr. Andrew W. Albro, of Standard Valuation Services, on behalf of the Respondents are highly qualified appraisers whose qualifications were stipulated to by opposing counsel. Mr. Deutsch and Donald Franklin prepared the Petitioner's appraisal. The appraisal report on behalf of the Respondent was prepared jointly by Michael Haberman and Ronald Haberman of Michael Haberman Associates, along with Matthew L. Smith, Andrew W. Albro and Ronald Camilleri of Standard Valuation Services. Each of them placed the greatest reliance upon the Income Capitalization Approach to Value. The Court concludes that this is the most appropriate methodology for the valuation of an income producing property such as the subject. Merrick Holding Corp. v. Board of Assessors of County of Nassau, 45 NY2d 496 (1978); 41 Kew Gardens Road Associates v. Tyburski, 70 NY2d 325, 331 (1987).

There are two other generally recognized methods of valuation of real estate, the Direct Sales Comparison Approach and the Replacement Cost New Less Depreciation. The former considers sales of other properties generally comparable to the subject, and makes adjustments for differences [*5]from the subject. But, in valuing property owned for its ability to generate income, in order to establish true comparability, the proponent must demonstrate a detailed understanding of the income and expenses attributable to the property. Earla Associates v. The Board of Assessors and the Board of Assessment Review of the City of Middletown, 13 Misc 3d 1246(A) (Westchester Supreme, 2006, Dickerson, J.), quoting The Appraisal of Real Estate, 12th Ed., Appraisal Institute, Chicago, Ill., 2001 at pp. 419 — 420. In the absence of detailed financial information about the comparable sale, they may provide corroboration for the value found under the Income Capitalization Approach, but are not regarded as primary evidence of value.

The Replacement Cost New Less Depreciation Approach seeks to estimate the land value and the cost of reconstruction less accumulated depreciation as of the date of valuation. It is useful in the valuation of specialty properties which are not typically held for the production of a stream of income or for which comparable sales are available. General Crushed Stone v. State, 93 NY2d 23, 25 — 26 (1999). It is an appropriate approach for the valuation of "specialty properties", defined as " . . . a structure which is uniquely adapted to the business conducted upon it or use made of it and cannot be converted to other uses without the expenditure of substantial sums of money". Great Atlantic and Pacific Tea Company v. Kiernan, 42 NY2d 236, 239 (1977), (internal citations omitted).

Neither party placed any weight on either the Replacement Cost New Less Depreciation or the Direct Sales Comparison Approach.

Mr. Deutsch testified that he used the income approach to appraising this property and his methodology included inspecting the property, reviewing rent rolls which were requested and received leases as well. He used that information to make an estimate of income, followed by an estimate of expenses. He said that his net operating income included taxes, which were not deducted as an expense, but were accounted for by the addition of a tax factor to the overall capitalization rate. He took the position that "we must use the effective tax rate as a part of the capitalization rate." (TT 58, April 9, 2008).

He also testified that appraisals such as these are made with several basic assumptions in mind. These assumptions, are by and large, legal fictions created by the law of assessment. First, it is assumed that there is a sole, single owner of the property, not an entity such as the true owner, Simon Properties. There is no "enterprise value" available to the assessor in making his determination. It is assumed that the property is owned free and clear of any indebtedness or encumbrances. It is assumed that every square foot of leasable area in the mall is leased at market, not contract rent. Finally it is agreed that appreciation or depreciation of the property is not a factor in the assessment.

Since the County had taken an opposite approach by excluding taxes from income, the witness was asked why he chose the gross lease number instead of the net lease number, where the real estate taxes would not be included. He testified that "(s)ince the taxes are at issue here if I don't include the taxes I have no way of measuring what the occupancy cost is for the building. If taxes are left out, at that particular point the assumption would be that the assessor could tax this as—at whatever he wants. He could put any tax rate on there and assume that the tenant is going to pay it." Continuing, he stated " that assumption is absurd because anybody who comes in to lease property will ask what is my occupancy going to cost. His business model, everything is set up on occupancy cost." (TT p. 90, April 9, 2008).

Mr. Deutsch next testified as to the use of comparables in preparing the report and a chart [*6]of the department stores he utilized appears on page 45 of the report. He explained that department store information is hard to obtain and utilize for comparison. He also stated that the leases he did use often were adjusted for comparison with the subject property. So, for example, the Nordstrom's lease was obviously available and not adjusted at all, while others outside the mall were adjusted for various variables such as location, size, etc. The first comparable is a Kohl's department store located about 2 miles east of the subject property also on Old Country Rd. It is just off the Wantagh State Parkway in Westbury. He adjusted this lease upward by 10%.

On cross examination, the witness was questioned about his use of the Korpacz Real Estate Investor Survey in his report. It was pointed out that in the Korpacz survey, Roosevelt Field mall is identified as an "A+" property, whereas in the witness' own appraisal it was identified as a major regional mall. He answered that his company does not rate malls but said that it was an "excellent shopping center." Continuing with the Korpacz survey, it was pointed out that at page 156 of the addenda to the Goodman-Marks exhibit, there appears the Korpacz survey of overall cap rates for A+ malls for the first quarter of the first tax year in question. The average for these types of malls was 7.0%.

The petitioner's exhibit also had comparable rent rolls for the mall and four other area malls: Green Acres, Valley Stream; Sunrise Mall, Massapequa; Broadway Mall, Hicksville, and Walt Whitman, Huntington. The witness agreed that none of these were the quality of the subject property, but that Walt Whitman "was no slouch." The rents were not available from Whitman and it was pointed out that it too is owned by Simon Properties, the owner of the subject property.

With regard to the mortgage rate utilized by the petitioner-7%- the County took the position that this number was not supported by the materials relied upon. For example, one of the sources for determining a mortgage rate for the subject was the American Council of Life Insurance Companies (ACLI) survey of commercial mortgage rates for the year in question. That survey, included in the petitioner's exhibit, indicates a mortgage rate of 5.43% and 5.61% for the years 2005 and 2006, as compared with the 7% that the petitioner utilized. Mr. Deutsch then stated that if all other factors remained the same, a higher mortgage rate would result in a higher overall capitalization rate. Additionally, it was established that the ACLI survey of retail cap rates for the years in question averaged 7.9% and 7.2%.

In particular, Mr. Deutsch testified that he used the "overall capitalization" or mortgage/equity technique in assessing the property. He began with estimating what kind of mortgage he believed the property could attract and concluded that a 70%/30% mortgage to equity ratio with a term of 20 years was reasonable for this exercise. He next established the equity dividend rate as required in a tax certiorari proceeding. He testified that the equity dividend rate is the rate of return that a typical investor buying this property and/or holding this property would expect. "This is return that somebody would want to look for coming out of this property as a single entity property and our choice was ten percent for each year under review." (TT p. 82, April 10, 2008). Mr. Deutsch pointed out that this is the expected return for the single year under review in each instance. This is in contrast to the equity yield rate, which would be the return the property would have over a particular holding period for any number of years that one would want to consider. The equity dividend rate speaks to the expected return for the one year under review.

After continuing to testify as to how he arrived at certain other numbers required for his process, he stated that the overall capitalization rate-the rate of return that an investor would look for to have this property generate over the one year period was .0951%, or 9.5% for January 2, 2004. [*7]

The County introduced eighteen exhibits (F2-20) which were prior appraisals done by the witness and/or his firm. In these appraisals covering the period in question in the subject application the overall capitalization rate was found to be consistently in the .950% range, the same as the instant appraisal. The properties appraised in these exhibits ranged from a single store retail building (for example, an appliance store) to a two story coop apartment in Great Neck and a similar apartment complex in Freeport to a strip shopping mall in the Five Towns. The inference sought to be established here is that if overall cap rates reflect the anticipated return of an investor purchasing a property in the single year under review, how can the same cap rate be ascribed to such wildly different properties as a two story coop apartment in Freeport and a super regional mall such as Roosevelt Field? Illustrative of the County's approach was the cross examination involving the appraisal of the Rockaway Realty property-a strip center in the Five Towns. Establishing that the witness had ascribed the same cap rate in both appraisals, the following exchange was had:

QMr. Kershaw: Your previous testimony, you agreed with me that that Rockaway Realty had the same equalization—I'm sorry, same capitalization rate as Roosevelt Field?

AYes

QAnd you also agreed with me that Roosevelt Field was a superior mall?

ABricks and mortar are superior facility for and a better location, yes.

QBut yet you signed the - - you assigned the same level of risk to an inferior mall?

AAbsolutely wrong. I did not assign the same level of risk in any way, shape or form. That is not what I said. I assigned a similar cap rate but I did not assign the same level of risk. Totally different level of risk.

TT p. 236, April 109, 20008. (Mr. Deutsch did point out that the particular appraisal in question was the subject of a tax assessment trial and the Supreme Court, Nassau County affirmed his cap rate.)

On its' direct case the County called Mr. Edward Albro as it's appraiser. He testified that he holds the Member of the Appraisal Institute (MAI) designation, the highest such designation in the field. He is currently the present of the Long Island chapter of the Appraisal Institute. He was qualified as an expert in his field. Mr. Albro described Roosevelt Field as an "A+ super regional mall, a result of its size, stature and capacity to generate sales for its tenants. (TT p. 284, April 14, 2008). When asked how he would rank the property as compared to other regional malls in the area and the state, he answered "It would have to rank the tops, I would expect. It's the largest mall in the State of New York. It has premier location with respect to the density and extent of the population and trade area, the affluence of its trade area. He also stated that the sales of its in line tenants "far exceed" both the state and national averages. (TT p. 285, supra). After admitting his report into evidence, he stated that source material for his report included the Korpacz Real Estate Survey, the Rear Estate Research Council and the American Council of Life Insurers (ACLI), all of which were also referenced by the petitioner.

Mr. Albro testified that as Mr. Deutsch, he utilized the income capitalization approach in appraising the property for fair market value. The method involved establishing market rents for the tenants, multiply that by the square footage, minus a vacancy and collections allowance which yields the estimated gross income. Subtracting from that the estimated expenses yields the net operating income. That net operating income is then divided by the overall capitalization rate and that provides an estimated market value. The witness referred to the rents as "triple net leases", that is one in which the tenant is responsible for all operating costs including taxes and maintenance.

With regard to his estimate of overall capitalization rates Albro testified that he "detailed [*8]abstracts" of five regional mall sales which are found on pages 70-74 of his report. The first was Broadway Mall, Hicksville. The second was Sunrise Mall, Massapequa, followed by regional malls in Florida, Virginia and Ohio. For the two malls in Nassau County, he testified that the Broadway Mall had a cap rate of 6.7% and the Sunrise Mall was 7.88%. He further stated his opinion that due to its superior location and its ability to generate tenant sales, he would expect that the overall cap rate for Roosevelt Field would be lower than that of the Broadway Mall.

Mr. Albro then testified the steps he took in utilizing the "band of investment method" in appraising the property. As Mr. Deutsch did before him, Mr. Albro established a mortgage constant and a 70/30 mortgage to value ratio, an equity cap rate to be applied to the equity position multiplied by the balance of the loan to value ratio of 30%. He testified that his proposed overall cap rates for the three years in question is 7% for each year. After coming to this conclusion, he testified that he performed several checks of his opinion. These included comparable sales, checking with other experts in the field, and several others. For example, the Korpacz survey for A+ malls maintained an average of 6.5% to 8% for the years in question, well below the 9.5% that the petitioner testified to. He then testified to his opinion of market value, first of the entire center and then of the protested parcels. Those figures are as follows:

2004 - $5,811,960

2005 - $6,141,080

2006 - $6,161,395

He then testified that these numbers were higher than the actual assessments, another indication, he said, that the mall is not over assessed. Aware that one of the areas of difference in methodologies between the two appraisers was the issue of whether to include the taxes collected as part of gross income of the center, the witness testified that he chose not to include them. He stated that the computations at pages 174 and 175 of his report indicate that there is no difference in the conclusion either way one handles the taxes, as either way, he concludes that the mall is under assessed.

On cross examination, the witness was questioned extensively on the differences between his report and that of Goodman-Marks. On the question of risk and the overall cap rates, it was pointed out that an investor buying a corporate AA rated bond would in the relevant time period would be looking at a return of 5.44% risk free. A BAA rated bond would yield 6.44%. The implication being that if one could get that return with virtually no risk, the offered cap rate of 7% for an investor in Roosevelt Field was far too low. Referring to that comparison, Mr. Albro testified, "What it says is, that an investor at that point in time could expect a yield, if the bond wasn't called or any other issues, a yield distinguished from a capitalization rate is night and day " (TT April 15, 2008, p. 431).

The petitioner called Mr. Peter Korpacz as its next witness. He testified that he was a member of the Appraisal Institute and original author of the Korpacz Real Estate Investor Surveyor. The survey, used by both experts in this case and included in both submitted appraisal reports, is a quarterly publication of cap and discount rates and other real estate trends. He testified that he sold the business to Price Waterhouse Coopers about nine years ago and for the period of time involved in this appraisal he was the editor in chief. He testified that over time he and his partners developed a group of participants over the years who took part in their surveys concerning trends in the real estate industry. Issues covered were what these participants saw as cap rates in the market, discount rates, statistical information about rents and other such issues. This information was put into spread sheets and developed into ranges and averages for that particular quarter. He testified that participants included pension funds, consultants, commercial banks, real estate investment trusts, [*9]private funds, and real estate brokers. It is important to consider two things about his testimony. One is that the survey did not relate completed real estate transactions in the marketplace; the other is that many significant property owners do not participate in the surveys including Simon properties, the owner of Roosevelt Field.

On cross examination, in discussing the range of overall cap rates, he stated that it was "fair to say that a mall that has a high level of gross sales would be at the low range of your overall cap rate " (TT p 574, April 28, 2008). He added that "typically the malls doing better sales have a greater opportunity for growth and income over time and investors are willing to pay up for that, therefore a low cap rate is involved." (TT p. 575).

The County called as its final witness Mr. Mark Kenney, a real estate appraiser based in Langdale, PA. He is a member of the Appraisal Institute and is licensed in New York, Pennsylvania, New Jersey, Minnesota, Iowa and Indiana. He was retained by the County to do a review of the petitioner's appraisal. He said that he did not agree with the cap rates contained in the report and thus came up with his own. Those rates are as follows: 2004- 7.4%; 2005- 6.8% ; and 2006-6.6%. He was then asked to explain how he developed these rates. He testified that he used the band of investment approach, using the information contained in the Goodman-Marks report and cross referenced the Korpacz survey of Class A plus malls.

It was acknowledged on cross-examination that Mr. Kenney did not know how much of the mall rent was attributed to department stores vs. in line stores. He also agreed that a mall that had reached its maximum potential, such as Roosevelt Field, with little room to grown in the future would be at the higher range of cap rates compared with a center that had a less fully-developed income stream.

Areas of Difference

Based upon the testimony, the post trial memorandums and the court requested Comparison of Appraisals, the parties obviously have several differences in their respective positions. For example, in deriving at the appropriate income for the subject property, the County chose a "net lease" model and the petitioner chose a "gross lease" approach. The difference in that approach would then obviously have a significant effect on "income." I do not find that the County appraiser's choice of taking the leases as "net" leases as being a serious concern to the ultimate issue here. The leases are in reality "triple net" leases meaning that the taxes paid by the mall are passed through to the tenant-that payment is of taxes, not rent. Additionally, when one adjusts for the taxes, the proof establishes that the difference in approach becomes an accounting exercise, as proven in the fact that both sides are extremely close in their ultimate determinations of income, expenses and net operating income estimates.

The more serious concern, of course, is the difference between the parties' choice of the OAR (overall capitalization rate) as discussed throughout the case. Here, the parties are a full 2.5 percentage points apart and if this litigation, so well prepared and tried by both sides, can be boiled down to a single issue, this is it.

This approach to value is broken down into Direct and Indirect Capitalization. The former converts an estimate of a single year's income expectancy into an indication of value in a single step either by dividing the calculated net operating income by an appropriate capitalization rate, or multiplying it by an appropriate factor. Indirect Capitalization involves the projection of a stream of income over a number of years in the future, reducing that figure to present value, and adding to that figure the residual value of the property at the end of the income stream. The Direct [*10]Capitalization Approach is appropriate when the property is operating on a stabilized basis. The Appraisal of Real Estate, at p. 529. The subject is clearly a stabilized regional shopping center, which is most appropriate for the application of the Direct Capitalization of Income Approach.

Market Rents

The initial step in the process is the determination of fair market rents for the subject for

each year under review. In order to determine the potential gross income, it is not appropriate practice to rely solely on actual reported income. The reason is that existing leases, even though provident when made, may have fallen behind the market, particularly in a period of economic upsurge. Merrick Holding, 45 NY2d at 543. These market rents may be drawn from the subject or from comparable properties. Both appraisers have done so in this case.

But it is at this preliminary juncture that the appraisers first part company. In estimating the market rent for the various forms of occupancy, the Petitioner adds the tax payable under the various leases to the base rent and other contributions such as common area maintenance and sprinkler charges. This is an appropriate method to calculate the gross lease, that is the total amount the tenant will pay in order to occupy the leased premises. In developing a capitalization rate, the Petitioner appropriately does not treat tax payments as an expense, because to do so would skew the result, since the taxes may be the product of an erroneous assessment, the subject of the proceedings. Instead, the Petitioner adopts the "assessor's method", the widely recognized conversion of the applicable tax rate multiplied by the equalization rate to create a tax factor, which is added to the overall capitalization rate. The tax rate is the percentage of value which the taxpayer should pay on an annual basis if the assessment is correct.

The Respondents, on the other hand, have chosen not to include the tax payments in the development of market rent. Since almost all the leases in the subject are triple-net, that is, the tenants are responsible, among other things, for all taxes attributable to the leased premises, the Respondent neither adds the taxes to the rental income nor utilizes a tax factor to account for the payment of taxes. While the Petitioner's approach is more frequently encountered, the use of the triple-net approach is also appropriate. Mill River Club v. Board of Assessors of Nassau County, 48 AD3d 169 (2d Dept. 2007).

For the purpose of determining the ultimate issue, whether or not the subject is over-assessed, the Court need not determine which approach is more appropriate.

The second, and critical, major difference between the appraisers is the selection of a capitalization rate. Both applied the Mortgage/Equity Band of Investment Approach, which considers that the purchaser of property will rely upon both borrowed funds (the Mortgage Component) and privately raised equity (the Equity Component). By determining the relative proportion of financing to equity, and multiplying that percentage by the constant mortgage payment one arrives at the mortgage component. Performing the same with respect to the equity demand produces the equity component, which added to the mortgage component, produces the overall rate.

There is a stark difference between the applicable mortgage and equity rates relied upon by the experts. Mr. Deutsch selected a mortgage rate of 7% for each of the three years in review, while Mr. Albro utilized 5.375%, 5.500%, and 5.750% respectively. By the Court's calculation, Mr. Albro's selections average 23% less than Mr. Deutsch's.

But this pales by comparison to the difference in the selected equity rates. Mr. Deutsch selects 10% for each year. Mr. Albro's rates are 6.5%, 5.5%, and 5.5% for the respective years, an average of 42% less. The overall rates, a combination of the sum of the proportionate shares of each, [*11]also show Mr. Albro's to be more than 40% lower than those of Mr. Deutsch. It is on this issue that the case will be determined.

The mortgage component of Mortgage/Equity Band of Investment should be readily determinable from actual market transactions, studies which extract mortgage rates from market transactions and contemporaneous publications which announce the availability of commercial financing. Mr. Deutsch testified that he utilized a 70%/30% ratio of mortgage financing to equity contribution, and calculated a constant mortgage payment based on a 20-year term. He selected a 7% mortgage rate for each of the three years. (TT p. 73, April 9, 2008), producing a mortgage constant of 9.30%.

Mr. Albro also utilized the Mortgage/Equity Band of Investment Approach, with a ratio of 70% mortgage and 30% Equity contribution over a 25-year term. He utilized mortgage rates of 5.375%, 5.50%, and 5.750% for the years under review. He calculated the mortgage constant over a 25-year payment term, arriving at a mortgage constants of 7.28% , 7.37% and 7.55%.

The Petitioner's overall rate based upon the foregoing is 9.50% for each of the three years, while the Respondent utilized 7%. The Petitioner added the previously discussed tax factors of 5.74%, 5.89% and 5.95% for a composite capitalization rate of 15.24%, 15.39% and 15.45%. Dividing the estimated net operating incomes of $72,338,000, $76,310,000 and $79,840,000 by these rates produces estimated values of $401,790,000, $421,450,000 and $434,900,000 for 2005/06 — 2007/08 respectively.

The Respondents' overall rate is 7% for each of the years under review. By dividing their calculated net operating incomes of $43,509,543, $45,976,415, and $48,320,750 produces indicated values of $621,600,000, $656,800,000, and $690,300,000 for 2005/06 — 2007/08. These values showed no reductions from the actual assessment, while the Petitioner's valuation reflected assessment reductions of $155,900 for 2005/06, and $738,600 for 2006/07. They showed not reduction for 2007/08.

In determining the appropriate level of mortgage and equity rates, the Court has considered the appraisals, the addenda thereto, and the testimony of the witnesses. Both parties included the American Council of Life Insurers reports on mortgage rates for retail in the area of the subject as 5.66% for 2004, 5.31% for 2005, and 5.90% for 2006. The Petitioner has also included extracts from Realty Rates, reflecting average mortgage rates for retail to be 5.70% for 2004, 6.84% for 2005, and 6.82% for 2006. The Court notes that the valuation dates of January 2, 2004 — January 2, 2006 represented a period in which mortgage rates were at historical lows and that the parties both acknowledge that Roosevelt Field is a stable and immensely successful regional mall. The Court therefore adopts mortgage rates of 6.0%, 6.25% and 6.50%, and calculates the mortgage constant payment based upon a 20-year term to be 8.6%, 8.8%, and 8.9%.

The equity component represents the anticipated return to the equity contributor. It is only one of a number of choices for an investor. The rates, to be attractive, must consider the level of risk and the relative illiquidity of the investment. The rate will fall somewhere between the "risk free" investment of Government bonds, and the Standard & Poors 500 return, which is based on stocks, which are very liquid, but volatile. The Respondents' equity rates are in part based upon the Korpacz study of Class A+ regional malls, the Real Estate Research Corp (RERC), and American Council of Life Insurance. Their selected rates are 6.50%, 5.50% and %.50% for 2005/06 — 2007/08 respectively.

Included in the Petitioner's Addenda is information from Realty Rates indicating average [*12]equity dividends for "anchored retail" to be 11.06 for 2004, 10.97% for 2005, and 10.79% for 2006. They have selected an equity rate of 10% for each of the three years.

It is difficult to reconcile the difference in reported rates. There is no clear evidence of what rates, if any, are based exclusively based upon Class A+ regional malls. Among the financial information relied upon by both appraisers are the following economic indicators:



These are investment options with generally less risk and more liquidity than an equity position in real estate.

It is true that the Korpacz Studies report overall capitalization rates from the market in the range of 6.5% — 8%. These are undoubtedly correct measurements of the net operating income divided by the sales price, but "the appraiser must make certain that the net operating income of each comparable property is calculated and estimated in the same way that net operating income of the subject property is estimated". Appraisal of Real Estate, 13th Ed., Appraisal Institute, Chicago, Ill., p. 501. For example, an operating statement is unlikely to contain a "vacancy and credit allowance", since the actual income reflects whatever vacancies may exist. More importantly, the real estate taxes are treated as a regular operating expense, and deducted before arriving at the net operating income. Thus the latter figure is quite different from the estimated net operating income based upon market, as opposed to actual income, with no deduction for vacancy and real estate taxes subtracted. For this reason the overall rates compiled by Korpacz, while instructional, are not entirely relevant to the calculation of the overall rate in the tax certiorari field.

Considering all of the stated considerations with respect to the quality of the subject, the relatively low risk to an investor, but also considering the illiquidity of the investment, the Court adopts Equity Rates of 7.25%, 7.50%, and 7.75% for the years under review.

Without concluding the desirability of one approach over another, the Court has adopted the Petitioner's estimates, but substituted the foregoing mortgage and equity rates. The result is as follows:

Indicated Reduction

Valuation Date	10:22 am	10:22 am	10:22 am
Tax Year	2005/06	2006/07	2007/08
Department Stores
Leaseable Area	1,205,000	1,205,000	1,205,000
Market Rent/SF	$15.00	$15.50	$16.00
Gross Expectable Income	$18,075,000	$18,677,500	$19,280,000
Nordstrom
Leaseable Area	225,000	225,000	225,000
Market Rent/SF	$15.00	$15.50	$16.00
Gross Expectable	$3,375,000	$3,487,500	$3,600,000
In-Line Concourse Level
Gross Leaseable	60,000	60,000	60,000
Market Rent/SF	$30.00	$32.00	$35.00
Gross Expectable	$1,800,000	$1,920,000	$2,100,000
In-Line First Level
[*13] Gross Leaseable	352,000	352,000	352,000
Market Rent/SF	$105.00	$110.00	$115.00
Gross Expectable	$36,960,000	$38,720,000	$40,480,000
In-Line Second Level
Gross Leaseable	283,000.00	283,000.00	283,000.00
Market Rent/SF	$100.00	$107.00	$112.00
Gross Expectable	$28,300,000	$30,281,000	$31,696,000
Kiosk Space
Gross Leaseable	3,500	3,500	3,500
Market Rent/SF	$400.00	$430.00	$450.00
Gross Expectable	$1,400,000	$1,505,000	$1,575,000
Bank Space
Gross Leaseable	4,835	4,835	4,835
Market Rent/SF	$105.00	$110.00	$115.00
Gross Expectable	$507,675	$531,850	$556,025
Out Buildings (Including Theater)
Gross Leaseable	64,345	64,345	64,345
Market Rent/SF	$40.00	$43.00	$45.00
Gross Expectable	$2,573,800	$2,766,835	$2,895,525
Food Court
Gross Leaseable	12,000	12,000	12,000
Market Rent/SF	$300.00	$305.00	$310.00
Gross Expectable	$3,600,000	$3,660,000	$3,720,000
Miscellaneous Income	$700,000	$700,000	$700,000
Total Gross Expectable	$97,291,475	$102,249,685	$106,602,550
LESS: Vacancy & Credit(5%)	$4,864,573.75	$5,112,484.25	$5,330,127.50
Effective Gross Income	92,426,901	97,137,201	101,272,423
EXPENSES
Total Common AreaMaintenance	$12,000,000	$12,500,000	$12,900,000
Management Fees	$3,700,000	$3,700,000	$3,700,000
Advertising & Promotion	$2,000,000	$2,000,000	$2,000,000
Major Capital Expenditures	$0	$0	$0
Leasing Costs/Construction	$0	$0	$0
Leasing Commissions	$924,000	$971,000	$1,013,000
[*14] Structural Reserves/CapitalImpr.	$1,120,000	$1,120,000	$1,120,000
Tenant Improvements	$350,000	$350,000	$350,000
Total Expenses	$20,094,000	$20,641,000	$21,083,000
Net Operating Income	72,332,901	76,496,201	80,189,423
Capitalization Rate
Mortgage Rate/20-yearTerm	6.00%	6.25%	6.50%
Mortgage Constant	0.086	0.088	0.089
Equity Rate	7.25%	7.50%	7.75%
Mortgage Component(70%)	6.02%	6.16%	6.23%
Equity Component (30%)	2.18%	2.25%	2.33%
Overall Rate	8.20%	8.41%	8.56%
Tax Factor	5.74%	5.89%	5.95%
Composite CapitalizationRate	13.94%	14.30%	14.51%
Indicated Value	519,073,565	534,938,467	552,839,866
Actual Assessed Value	$3,912,627	$4,679,111	$3,784,699
Equalization Rate	0.00935	0.00935	0.00965
Indicated Assessment	$4,853,338	$5,001,675	$5,334,905
$0	$0	$0

While the foregoing analysis produces values less than those found by the Respondents, they nevertheless exceed the full-value assessment for the subject properties. Consequently, the Petitioner has not established entitlement to reduction in assessment for any of the three tax years under review. The Petitions are dismissed, without costs or disbursements.

ENTER

DATED: July 25, 2008



Hon. Arthur M. Diamond, J.S.C.

Attorney for Petitioner

CERTILMAN BALIN HYMAN & ADLER

90 Merrick Ave., 9th Floor

East Meadow, NY 11554 [*15]

516) 296-7000FAX: 296-7111

Attorneys for Respondents

LORNA B. GOODMAN

NASSAU COUNTY ATTORNEY'S OFFICE

1 West Street

Mineola, NY 11501

(516) 571-3056FAX: 571-6604