Appellate Division Finds 12-Story Budget Hotel To Be Highest And Best Use of Condemnee’s Property Following Rezoning

Claimant, 730 Eq. Corp., owned a 20,738 square foot, irregularly shaped, vacant parcel of real property in Brooklyn.  The property was in an M1–1 manufacturing district, and had previously been improved with a gas station. The property was subject to a long-term lease with Amoco, which intended to build a gas station on the property. In December 2009, New York State Urban Development Corporation d/b/a Empire State Development Corporation (“ESDC”), used eminent domain to take the subject property, among others, for the Atlantic Yards project. The trial court granted the condemnation, and awarded Claimant $6,906,000 as just compensation for the taking. Claimant appealed from the award as being inadequate (for reference, the trial appraisals were $20 million for Claimant and $2.8 million for ESDC).

In making its award, the trial court determined that Claimant had established that, absent the project, there was a reasonable probability that the property would have been rezoned to C6–2A. The court found many of the area’s buildings had been converted to commercial and residential use, and noted that New York City policy was to rezone underutilized industrial sites for commercial or residential development. Furthermore, the lease on the property did not prohibit finding a different highest and best use than contemplated in the lease, as the property must be valued at “its highest and best use on the date of the taking, regardless of whether the property is being put to such use at the time.”

On appeal, the Appellate Division, Second Department held that the trial court’s determination that a 12–story budget hotel would be legally and physically possible, and financially feasible, was supported by the record. Specifically, the Court cited testimony by ESDC’s own expert regarding alternate designs for such a hotel that would meet the zoning requirements, and evidence of an increased demand for and development of hotels in Brooklyn around the vesting date. It further held that the trial court need not accept the opinions of ESDC’s experts on the financial feasibility issue. Accordingly, the Court held that the Supreme Court properly rejected ESDC’s appraisal and based its award on Claimant’s appraisal with such adjustments as the evidence supported.

The case was 730 Eq. Corp. v. New York State Urb. Dev. Corp., 37 N.Y.S.3d 599 (2d Dep’t 2016).

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