Petitioner commenced this special proceeding, pursuant to Article 7 of the Real Property Tax Law ("RPTL"), seeking to reduce the assessment of its real property located in the Town of [*2]Amherst, New York, at 3925 Sheridan Drive (the "Property"). The challenge pertains to the 2009-2010 tax year.

Petitioner and Respondents entered into a stipulation of settlement in this Proceeding (last dated, January 4, 2010), which was incorporated into an "Interim Order" granted on January 4, 2010 (the "Interim Order"). Intervenor- Respondent neither participated in the settlement, nor consented to the entry of the Interim Order, electing instead to continue with this Proceeding - which it was entitled to do (PNL Stillwater, LLC v. Bd. of Assessors, 94 AD3d 1401, 1403 [3rd Dept 2012] ["Upon exercising the option to intervene in an RPTL article 7 proceeding, a school district's right to fully participate in its resolution, either by settlement or trial, cannot be compromised as here proposed"]).

A non-jury trial was conducted on April 3 and 4, 2014. The parties (Petitioner and Intervenor-Respondent) waived post-trial submissions.

On April 16, 2014, the Court issued a written Decision and Order which, inter alia, denied the Petition (the "April 16 Decision and Order"). Petitioner appealed, and on October 9, 2015, the Appellate Division, Fourth Department, reversed the April 16 Decision and Order on the law and remitted the matter to this Court for further proceedings consistent with its Memorandum. The Appellate Division held that this Court,

failed to comply with RPTL §720(2) by failing to set forth the essential facts upon which it relied in arriving at its determination of the fair value of the property during the tax year[] in question' (Excelsior v. Assessor, Town of Amherst, 132 AD3d 1339 4th Dept 2015] [internal citations omitted]).

The Memorandum also "note[d]" that "the court may not set an assessment in excess of the total assessment on the tax roll" (Id.; internal citations omitted).

Petitioner's appeal from the April 16 Decision and Order was based, in large part, on the procedural claim that the Court failed to comply with RPTL §720(2).

At the time it issued the April 16 Decision and Order, this Court recognized that it did not include the essential facts required by RPTL §720(2). Leading up to the trial, Petitioner and Intervenor-Respondent had attempted to settle this matter (and related litigation over future tax years with, and without the Court's assistance). In order to assist in their ongoing settlement efforts post-trial, and in an effort to mitigate the expense associated with post-trial submissions, the parties instead requested that the Court provide them with a value determination for the Property (the "Value Determination"), expressly declining the opportunity to submit proposed post-trial findings of fact, which would have assisted the Court in complying with RPTL §720(2). Accordingly, the Court accommodated the parties' joint request by providing them with the Value Determination in the amount of $8.6 million.

While the Value Determination exceeded the challenged assessment, the Court had no intention of ". . . set[ting] an assessment in excess of the total assessment on the tax roll."

The manner in which this matter has progressed is the antithesis of the Commercial Division's state-wide mission to adjudicate commercial matters as expeditiously and as cost effectively as possible.

The balance of this Decision and Order provides the essential facts upon which the Court relied in making the April 16 Decision and Order.

Anthony Girasole ("Girasole") prepared the appraisal report submitted by Petitioner (the "Girasole App."), and James Szakacs ("Szakacs") submitted the appraisal report submitted by Intervenor-Respondent (the "Szakacs App."). Both appraisers valued the Property for the 2009-2010 tax year, as of July 1, 2008, with a taxable status date of March 1, 2009, pursuant to RPTL §302(2). Both appraisers also valued the Property utilizing the sales comparison and income capitalization approaches. Neither appraiser valued the Property according to the cost approach.

Petitioner and Intervenor-Respondent stipulated to the acceptance of each other's appraisal report, but reserved their respective rights to object to, and challenge the validity of all or a portion of said reports.

The Property consists of an approximate 11.73 acre site improved with a masonry multi-tenant, multi-use building containing 61,400 square feet of gross and net leasable building area, constructed in 2005 (the "Building"). The Property is owned by Preferred Equity Partners 1, LLC ("Preferred Equity Partners"), and at all times relevant to this proceeding, it was leased to Petitioner and Buffalo Surgery Center, LLC ("Buffalo Surgery"). The Property and its Building are used for high-end medical purposes, consisting of a full service orthopedics medical/surgical/MRI center.

It is undisputed that, collectively, Petitioner and Buffalo Surgery lease 58,500 square feet of space at the Building. The remaining area (approximately 2,900 square feet) consists of common area, including, inter alia, a conference center and waiting rooms (the "Common Area Space"), for a total of approximately 61,400 square feet of gross leasable space at the Building.The Common Area Space does not consist of hallways and corridors. However, Girasole did not include the Common Area Space for purposes of his calculation and determination of value, because he did not deem such space to be revenue producing (Trial Transcript, page 18; hereafter "Tr., at __").

Girasole should have included the Common Area Space in his appraisal, because features such as a conference center and waiting rooms are essential to the reasonable operation of a medical office, and the Building's tenants have full access to, and make use of this space. Moreover, the Girasole Appraisal includes a rental schedule of the Building that reflects leasable space in the amount of 62,500 square feet (the "Rent Schedule") (Girasole App., at J1). Finally, Girasole's engagement letter to Petitioner's attorney, dated November 12, 2013 (the "Engagement Letter"), reflects a leasable area of 61,592 square feet (Girasole App., at C1). The Rental Schedule and Engagement Letter are inconsistent with Girasole's exclusion of the Common Area Space from gross and net leasable area.

Szakacs identified the Building as containing 61,400 square feet of gross and net leasable area (Szakacs App., at 2), which is consistent with the Town of Amherst Assessor's ("Assessor") records (Tr., at 50).

In light of the forgoing, the Court finds that the Building consists of 61,400 square feet of gross and net leasable area.

In preparing appraisals of real property, appraisers have traditionally relied on one of [*3]three methods of valuation: comparable sales, capitalization of income, or reproduction cost less depreciation (Allied Corp. v. Town of Camillus, 80 NY2d 351 [1992]). The comparable sales method of valuation is "generally the preferred measure of a property's value for assessment" (Id., at 356). Pursuant to the sales comparison approach to value, an appraiser selects one or more properties that he or she deems similar to the subject property and makes adjustments to them to address the differences between them and the subject property (Latham Holding Co. v. State, 16 NY2d 41 [1965])^[FN1] ; Matter of Peck v. Obenhoff, 84 AD2d 633 [3d Dept. 1981] [petitioner in a tax certiorari proceeding was incapable, as a matter of law, of establishing that the subject property was overvalued where his appraiser failed to make necessary adjustments to comparable sales]).

In comparing and adjusting comparable sales to the subject property, appraisers typically evaluate the following elements of comparison: property rights conveyed; financing terms; conditions of sale; expenditures made after purchase; market conditions; location; the use(s) to which the subject and comparable properties are being made; non-realty components of value; economic characteristics; and physical characteristics (Appraisal Institute: The Appraisal of Real Estate, 14th Ed., p. 390). Physical characteristics, which may require adjustment, typically include:

differences in size, . . . access, . . . quality of construction, architectural style, building materials, age, condition, functional utility, attractiveness, [and] amenities . . . (Id., at 420).

Although Girasole identified the sales of eleven (11) properties as potential comparable sales, he limited his sales comparison analysis to the following five (5) properties, which appear in his Improved Sales Grid (Girasole App., at 50):

6350 Transit Road, Depew, New York, identified as Sale No. 6. This property consists of a former supermarket, a portion of which was converted into a dentist's office. However, no portion of the Property, including the dentist's office, is similar to the Property's specialized medical office space. In addition, the seller sold the property to his then current dentist, and never listed it for sale on the open market (Tr., at 168), calling into question whether the sale was an arms-length transaction (New Cobleskill Associates, L.P. v. Assessors, Town of Cobleskill, 280 AD2d 745 [3d Dept 2001] [an arm's length sale occurs between a seller under no compulsion to sell and a buyer under no compulsion to buy]).

4285 Genesee Street, Cheektowaga, New York, identified as Sale No. 7. This property consists of general office space, unlike the Property's specialized medical office space.

95 John Muir Drive, Amherst, New York, identified as Sale No. 8. This property also consists of general office space, unlike the Property's specialized medical office space.

140 John James Audubon, identified as Sale No. 9. This property consist of general office space, unlike the Property's specialized medical office space. In addition, upon selling this property, the seller (Columbus McKinnon Corp., which is not in the medical business) leased a significant portion back from the purchaser at a below market rent (Tr., at 168). Girasole was not aware of this arrangement (Id., at 80), and therefore he failed to adjust for it (Id., at 81).

2350 North Forest, Amherst, New York, identified as Sale No. 10. The Girasole Appraisal incorrectly identifies this property as medical office space; it is actually general office space (Id.) In addition, the property was not the subject of an arms-length sale that can be used as a comparable sale, because it was purchased in a foreclosure sale (Id., at 168-169) (see, 806 Fifth Ave, Corp. v. Tax Comm. of City of New York, 8 NY2d 29 [1960] [a recent sale does not reflect market value if made under duress]; Krzys v. Town of Clifton Park, 267 AD2d 658 [3rd Dept 1999] [questions of fact exist as to whether property purchased at a foreclosure auction represents an arms-length transaction]).

While comparable sales must necessarily be adjusted to the subject, the necessity of too many adjustments generally reflects that the property is not comparable to the subject and should not be used as such (The Appraisal of Real Estate, 14th Ed., at 392-394). At trial, Girasole confirmed this principle, but he testified that he does not believe that the comparable sales he adopted required excessive adjustments (Tr., at 72-73).

The Court disagrees. Girasole adjusted comparable sales nos. 6-10 by an amount between 50 and 80% (Girasole App., at 50).^[FN2] The magnitude of the adjustments is self-evident, having significantly reduced (if not having eliminated) their reliability as indicators of the Property's value.

One of the properties that Girasole identified in his appraisal (but failed to consider as a comparable sale) is located at 4510-4514 Main Street, Amherst, New York (Girasole App., at 49). Girasole identified this property as Sale No. 5 (Id.), and it is a medical office building (Tr., at 57-58). He rejected it due to its size (Tr., at 58). It consists of 17,510 square feet of space (Girasole App., at 49), as compared to the Building's 61,400 square feet of space. Girasole did not identify any other reason for having rejected Sale No. 5 as a comparable sale.

Instead, Girasole testified that, had he considered Sale No. 5 as a comparable sale, he would have adjusted it against the Property to a value of $145 per square foot (Tr., at 61), and that, when considered along with the five (5) comparable sales he did use, his overall unit value for the Building would have increased from $110 per square foot (Girasole App., at 53) to $135 per square foot (Tr., at 61).

Despite its smaller size, Sale No. 5 is more comparable to the Property than any of the "comparable" sales Girasole actually used. Girasole should have used it as a comparable sale. Had he done so, his value determination of the Property according to the sales comparison approach would have been $8,289,000 (i.e., $135 x 61,400 sq. ft.) (Tr., at 62). By itself, Sale No. [*4]5 reflects a value of the Property in the amount of $8,903,000 ($145 x 61,400).

By contrast, Szakacs used four (4) comparable sales of high-end medical office complexes that are far more similar to the Property (Szakacs App., at 77-87).

Szakacs Sale No. 1 is the WNY Medical Park, located in West Seneca, New York (Id., at 77). It consists of two (2) one-story masonry brick buildings and one (1) two-story masonry building, which collectively include a full service ambulatory/surgery center providing neurological, radiological, and occupational therapy services (Id.).

Szakacs Sale No. 3 is located in Amherst, New York, and consists of two (2) one-story masonry multi-tenant medical office buildings, which include, inter alia, reception/waiting areas, exam rooms, and offices (Id., at 79). The primary tenant is a full-service sleep apnea care center (Id.).

Szakacs determined that Sale No. 1 did not require any adjustment and that Sale No. 3 required a modest 18% adjustment. The Court agrees with Szakacs' use of these comparable sales and the manner in which he adjusted them.^[FN3] They reflect a value of the Property that is significantly higher than both the assessment contained in the Interim Order ($6,600,000) and the challenged assessment ($7,574,900).

The Property is income producing, and the income capitalization approach to value is typically used to value such properties (Conifer Baldwinsville Associates v. Town of Van Buren, 115 AD2d 325 [4th Dept. 1985]). Both appraisers appraised the Property according to this approach.

The income capitalization approach attempts to estimate a property's value based on the income it is capable of producing (see Girasole App., at 54; Szakacs App., at 44, 47). An estimate of value is derived by estimating the subject's annual effective gross rental income and annual operating expenses; deducting such expenses from the income to arrive at a an annual net operating income; and converting the net operating income into an estimate of value through a capitalization process (Id.).

Girasole used six (6) comparable rental properties to determine an estimate of the Property's annual effective gross rental income (Girasole App., at 55-57).

For the following reasons, the Court rejects Girasole's comparable rental properties as tending to significantly undervalue the Property's potential rental value: Girasole used both gross leases and net leases ^[FN4] , but failed to explain how he reconciled them to each other and the Property; he adjusted the comparable rental properties to the Property, but failed to include the mathematical calculations or identify the percentage adjustments he made, contrary to 22 [*5]NYCRR §202.59(g), rendering it impossible for Intervenor-Respondent and the Court to evaluate the adjustments; several of the comparable rentals are dissimilar to the Property, because they are not medical offices; the lease payment terms in several of the comparable rentals ended many years prior to the Property's valuation and taxable status dates ^[FN5] , rendering the financial terms of such leases suspect as being uncomparably lower than lease rates the Property could yield in 2008 and 2009; Girasole's analysis failed to consider that the Property owner made significant improvements to the Property exceeding $2 million to make it suitable for its intended and ongoing use as a full service orthopedics medical/surgical/MRI center (Tr., at 83-98; Szakacs App., at 37-38); and Girasole's opinion that these improvements would not have increased his value opinion of the Property (Tr., at 95-98) is unreasonable.

Turning to Intervenor-Respondent's income approach to value, Szakacs used four (4) comparable rental properties to estimate the Property's annual effective gross rental income (Szakacs App., at 49-52).

In contrast to Girasole's comparable rentals, Szakacs' comparable rentals are similar to the Property and provide a sound basis upon which to anchor Szakacs' income approach to value. For instance, all of Szakacs' comparable rentals are of high-end medical facilities, like the Property. Indeed, Rental No. 1is a competing orthopedics facility, and Rental No. 3 includes an imaging facility. In addition, all of the leases of Szakacs' comparable rentals were executed in close proximity to the Property's valuation date (July 1, 2008) (Id.; Tr., at 148 ), making them more reflective of the current market than Girasole's comparables.

Unlike Girasole, Szakacs did not combine gross and net leases, and then fail to reconcile them to each other and the Property. Rather, he used solely net leases, and while he made adjustments to them, the adjustments were modest and he illustrated and explained them in an adjustment grid that included corressponding mathematical calculations (Szakacs App., at 54; Tr., at 149-151).

In determining the Property's potential net operating income for purposes of the income capitalization approach, Szakacs used both a higher vacancy rate and higher operating expenses than Girasole - both of which are in Petitioner's favor.

Both appraisers used a similar capitalization rate; Girasole used 8.657 % and Szakacs used 8.5% (Girasole App., at 64; Szakacs App., at 60). The appraisers' respective capitalization rates reflect a "net" lease, where the tenants (Petitioner and Buffalo Surgery) would pay the real estate taxes (Tr., at 156-165; Szakacs App., at 61-63; see also, footnote 4 above).

However, Girasole added an additional 3.038% to his proposed capitalization rate to account for the Property owner's (Preferred Equity Partners) payment of the real estate taxes, resulting in a final capitalization rate of 11.695% (Girasole App., at 64). Accordingly, Girasole's final capitalization rate of 11.695 reflected a "gross" lease, where Preferred Equity Partners would pay the real estate taxes (see footnote 4 above).

Girasole committed error by mixing a net operating income figure with a gross capitalization rate. Had he sought to use a gross capitalization rate, he should have "grossed up" (i) the operating expenses to reflect the additional expenses Preferred Equity Partners would have paid on a "gross" basis (e.g., insurance, a higher management fee, etc.), and (ii) the rent [*6]component of the operating income to reflect the additional rent Preferred Equity Partners would have charged Petitioner and Buffalo Surgery to account for these additional expenses and its payment of the real estate taxes (Szakacs App., at 61-63).

Accordingly, the Court rejects Girasole's income capitalization approach, replete with errors, and adopts Szakac's approach.

It is well settled that the challenged assessment is presumed correct, and Petitioner bears the burden of overcoming such presumption by coming forward with "substantial evidence" to the contrary (Matter of FMC Corp. v. Unmack, 92 NY2d 179, 187 [1998]). Substantial evidence is "evidence grounded in objective data and sound theory (Niagara Mohawk Power Corp. v. Assessor, 92 NY2d 192 [1998]). In the context of a tax certiorari matter, substantial evidence:

will most often consist of a detailed, competent appraisal based on standard, accepted appraisal techniques and prepared by a qualified appraiser (Id., at 196).

While the Court did not strike the Girasole Appraisal, the Court afforded it very little weight, having rejected Girasole's: comparable sales, comparable rentals, determination of net operating income, and "gross" capitalization rate; resulting in Petitioner's failure to overcome the presumption that the challenged assessment is correct.

The Court was not required to evaluate the Szakacs Appraisal, because Petitioner failed to meet its burden, but it did so anyway. The Court adopted Szakacs comparable sales nos. 1 and 3 and the entirety of his income capitalization approach to value, resulting in a finding of the Property's value well in excess of both the assessment contained in the Interim Order ($6,600,000) and the challenged assessment ($7,574,900).

Having determined that the Property's value exceeds $7,574,900 for the 2009-2010 tax year, the Court is not required to find an actual value:

It is well to bear in mind a fundamental distinction between a proceeding of this character [i.e., tax certiorari, pursuant to RPTL Article 7] and one to ascertain the value for the purpose of condemnation. In the latter proceeding the court is obligated to find the value of the property. In this proceeding the value need only be found if the petitioner shows that it is less than the value fixed by the appraisers (Joseph E. Seagram & Sons, Inc. v. Tax Comm., City of New York, 18 AD2d 109, 110 [1st Dept 1963]; see also, 49 Realty Co. v. Comm. of Finance, 15 AD3d 659, 660 [2d Dept 2005] [where court adopted respondent's appraiser's values, which "were higher than the published assessed values for the subject property, . . . it was unnecessary for the supreme court to state new findings of valuation"]).

For the foregoing reasons, it is hereby

ORDERED, that the Petition is denied and dismissed in all respects; and it is further

ORDERED, that the provisions of RPTL §727 shall apply; and it is further

ORDERED, that, to the extent Petitioner paid taxes to Intervenor-Respondent based on the real property tax assessment for the tax years 2009-2010, 2010-2011, 2011-2012, and 2012-2013 as set forth in the Interim Order (i.e., $6,6000,000), Petitioner shall remit to Intervenor-Respondent the balance of taxes owing based on this Decision and Order without interest or penalties if paid within thirty (30) days of service of this Decision and Order, together with [*7]notice of entry; and such payment shall be based on an assessment of $7,574,900.

This constitutes the Decision and Order of this Court. Submission of an order by the Parties is not necessary. The delivery of a copy of this Decision and Order by this Court shall not constitute notice of entry.