Value of leased fee relevant to fee simple value of property subject to long-term lease.(Recent Court Decisions)

In valuing the fee interest of property subject to a long-term, build-to-suit lease, an appraiser properly considered the value of the leased fee, according to the New York Supreme Court, Appellate Division.

In the town of Colonie, a Rite Aid franchise leased a single-tenant retail pharmacy building, which was constructed pursuant to a build-to-suit, 20-year triple net lease agreement. The lease agreement requires the lessee to pay the real estate taxes on the property, and Rite Aid challenged the town's valuation of $2.5 million assessed for 2004, 2005, and 2006.

At the trial court hearing, Rite Aid's appraiser testified that he valued the property at $1.73 million for 2004 and 2005, and at $1.74 million for 2006. His valuation was based on comparable commercial retail properties in the same general area, none of which was currently occupied by national pharmacy chains or subject to long-term, build-to-suit leases.

In contrast, the town's appraiser included several build-to-suit leased properties in his analysis and valued the property at $3.6 million in 2004 and 2005, and $3.9 million in 2006. Based on the town's evidence, the trial court held that the property had not been overvalued ...