
    In the Matter of Joseph E. Seagram & Sons, Inc., Appellant, v. Tax Commission of the City of New York et al., Respondents.
    Argued April 28, 1964;
    decided June 10, 1964.
    
      
      Samuel I. Rosenman, Frederick J. Lind,, Seymour M. Klein, Max Freund, Lawrence R. Eno and Ernest A. Gleit for appellant.
    I. The court below erred as a matter of law because it attributed nonexistent real property value to the building and, as a result, used recent construction cost as the test of value for this commercial building. As appears from the opinions below, the building is clearly overvalued if the normal test of economic market value, i.e., capitalization of income, be applied. (People ex rel. Parklin Operating Corp. v. Miller, 287 N. Y. 126; People ex rel. Hotel Paramount Corp. v. Chambers, 298 N. Y. 372; Matter of City of New York [Lincoln Sq. Slum Clearance Project], 15 A D 2d 153, 12 N Y 2d 1086; Matter of Pepsi-Cola Co. v. Tax Comm. of City of N. Y., 19 A D 2d 56; People ex rel. Manhattan Sq. Beresford v. Sexton, 284 N. Y. 145; Matter of 860 Fifth Ave. Corp. v. Tax Comm. of City of N. Y., 8 N Y 2d 29; Matter of 5 East 71st St. v. Boyland, 7 N Y 2d 859; Matter of Semple School for Girls v. Boyland, 308 N. Y. 382; People ex rel. New York Stock Exch. Bldg. Co. v. Cantor, 221 App. Div. 193, 248 N. Y. 533.) II. Assuming arguendo that the Seagram Building has advertising impact, prestige and like features that aid the sale of Seagram products and thus has additional value for Seagram’s principal enterprise, the liquor business, by producing income therefor, that is not real property value. (Matter of Knickerbocker Vil. v. Boyland, 16 A D 2d 223, 12 N Y 2d 1044; People ex rel. Gale 
      v. Tax Comm. of City of N. Y., 17 A D 2d 225; Paddell v. City of New York, 50 Misc. 422, 114 App. Div. 911, 187 N. Y. 552, 211 U. S. 446; People ex rel. Delaware, L. & W. R. R. Co. v. Clapp, 152 N. Y. 490; People ex rel. Hotel Paramount Corp. v. Chambers, 298 N. Y. 372; Matter of Putnam Theat. Corp. v. Gingold, 16 A D 2d 413; Matter of Empire State Bldg. Corp. v. Boyland, 1 Misc 2d 518, 1 A D 2d 770, 5 N Y 2d 715; People ex rel. Metropolitan Jockey Club v. Mills, 190 Misc. 277, 273 App. Div. 971; Matter of City of New York [Walsh], 17 A D 2d 534.) III. There is no evidence in the record to support the theory of the court below that the building had additional value for Seagram in that its advertising impact, prestige and like features produced income for Seagram’s liquor business or, if it had, that such value constituted real property value. IV. In any event, assuming arguendo that we are in error in our contention that the building here should have been valued on the basis of capitalization of net income-, the court below erred in not reversing and remanding the case for evidence on whether the building’s advertising impact, prestige and other features do produce income for Seagram’s principal enterprise, and whether this constitutes real property value. (Matter of Peters [Bachmann], 296 N. Y. 974; Foreman v. Foreman, 251 N. Y. 237; Bobb v. Washington & Jefferson Coll., 185 N. Y. 485.) V. If value should be determined on the basis of capitalization of net income, the court below erred as a matter of law in rejecting as a proper annual expense the cost of tenant changes. (Matter of 100 Park Ave. v. Boyland, 309 N. Y. 685.)
    
      Leo A. Larkin, Corporation Counsel (James J. McGowan and Edward J. McLaughlin of counsel), for respondents.
    I. The Appellate Division correctly held that the construction cost of a newly erected building, suitable for the site, is prima facie proof of its value for the purpose of real estate taxation in the absence of a satisfactory explanation that the cost was excessive. (Matter of 860 Fifth Ave. Corp. v. Tax Comm. of City of N. Y., 8 N Y 2d 29; Matter of City of New York [Lincoln Sq. Slum Clearance Project], 15 A D 2d 153; Matter of 5 East 71st St. v. Boyland, 7 N Y 2d 859; Matter of Pepsi-Cola Co. v. Tax Comm. of City of N. Y., 19 A D 2d 56.) II. The Appellate Division correctly held that petitioner’s “ explanation ” of the discrepancy between the actual construction cost of $36,000,000 and the alleged capitalized building value of $14,400,000 was not a satisfactory one. (Matter of City of New York [A. & W. Realty Corp.], 1 N Y 2d 428; Matter of Huie [Fletcher—City of New York], 2 N Y 2d 168.) III. The Appellate Division correctly held that there was no credible evidence to support petitioner’s expert’s allowance óf $288,000 for alleged amortization of so-called “tenant installations”. (Matter of 100 Park Ave. v. Boyland, 284 App. Div. 1033, 309 N. Y. 685; People ex rel. Manhattan Sq. Beresford v. Miller, 284 N. Y. 145; Matter of 666 Fifth Corp. v. Tax Comm. of City of N. Y., 11 N Y 2d 915.)
    
      Paul Windels, Whitney North Seymour, C. McKim Norton and Edward R. Finch, Jr., for Regional Plan Association and others, amici curiae.
    
    I. Excess cost is not per se a measure of value. II. A corporate sponsor of esthetics in a metropolis should be encouraged instead of penalized as this sponsor was penalized in the opinions below.
   Chief Judge Desmond.

In this proceeding to review tax assessments the contest is as to the values ($20,500,000 in two of the years, $21,000,000 in" the third year) assigned by the Tax Commission to the building which was completed just before the first of these tax years at a cost of $36,000,000. Summarized, the position of appellant is that capitalization of rental income, including estimated rent for the offices occupied by appellant itself, would not justify a building value of more than about $17,000,000.

Unlike many of the real property tax proceeding orders reviewed in this court, this order comes to us from an Appellate Division affirmance of Special Term so that questions of fact and of weight of evidence are not before us. We cannot reverse or modify in such a situation unless the record is without any substantial evidence to support the conclusion below or there has been error of law in the use of an erroneous theory of! valuation, or otherwise. We find no such errors here.

Although we do not concur in everything said in the two Appellate Division opinions, we agree that for an office building like this, well suited to its site, the actual building construction cost of $36,000,000 is some evidence of value, at least as to the tax years soon after construction (Matter of 5 East 71st St. v. Boyland, 7 N Y 2d 859; Matter of 860 Fifth Ave. Corp. v. Tax Comm. of City of N. Y., 8 N Y 2d 29, 32). Petitioner urges, however, that for a building built to rent and rentable, capitalization of net income is the only basis for valuation and that the building assessment here can be justified only by assigning an inflated value to the office space occupied by petitioner itself. This, says petitioner, really means that petitioner, having for its own reasons constructed an unusually costly and beautiful building, is being taxed ostensibly for building value but really for the prestige and advertising value accruing to petitioner because the Seagram Building” has become world-renowned for its striking and imposing beauty. We do not agree with this interpretation of the opinions and order of the Appellate Division.

Usually, the assumed rent for the space occupied by a building owner would for purposes of capitalization of net rent income be computed at about the same rate as the rents actually paid by other tenants. But there can be many reasons why, as both of the Appellate Division opinions state, the building as a whole bearing the name of its owner includes a real property value not reflected in commercial rental income” since “ the owner did not build for commercial rental-income purposes alone, and, as a consequence, capitalization of such income without adjustments produces a false result ” and, therefore, “ one must not confuse investment for commercial rental income with investment for some other form of rental value unrelated to the receipt of commercial rental income ”. In other words, the hypothetical rental for owner-occupied space need not be fixed at the same rate as paid by tenants. This does not mean that advertising or prestige or publicity value is erroneously taxed as realty value. It certainly does not mean that a corporate sponsor of esthetics is being penalized for contributing to the metropolis a monumental and magnificent structure.

The order should be affirmed, with costs.

Burke, J.

(dissenting). We do not suggest that cost of construction is not relevant, that it may not be taken into consideration as bearing on value. That it may be so considered is an old rule recognized in many cases prior to Matter of 5 East 71st St. v. Boyland (7 N Y 2d 859) and Matter of 860 Fifth Ave. Corp. v. Tax Commission of City of N. Y. (8 N Y 2d 29). (See, e.g., People ex rel. Amalgamated Props, v. Sutton, 274 N. Y. 309; Ettlinger v. Weil, 184 N. Y. 179, 183; People ex rel. Four Park Ave. Corp. v. Lilly, 265 App. Div. 68; Matter of Melcroft Corp. v. Weise, 256 App. Div. 291; Great Northern Ry. Co. v. Weeks, 297 U. S. 135; cf. People ex rel. Rome, W. & O. R. R. Co. v. Hicks, 105 N. Y. 198 [a railroad property tax case].) In fact, in the 5 East 71st St. and 860 Fifth Ave. cases, the over-all return under ordinary commercial operations supported the cost of construction; whereas here, the rent return under ordinary commercial operation concededly fails to support the cost of construction. We do criticize as erroneous in law the holding of the Appellate Division — and also the holding of this court insofar as it refuses to meet the issue — that cost of construction is prima facie evidence of value in the case of “ a newly-erected structure built especially for prestige and advertising value as well as for the headquarters use of its owner. ’ ’ (Matter of Pepsi-Cola Co. v. Tax Comm. of City of N. Y., 19 A D 2d 56, 59.)

While the well-settled rule is that capitalized net income is the best measure of the value of commercial rental property (People ex rel. Parklin Operating Co. v. Miller, 287 N. Y. 126; Matter of City of New York [Madison Houses], 17 A D 2d 317), it has now been decided that this measure must be displaced as “false” where the building is of such renown that the court feels that its owner must benefit economically thereby, over and above the rental commanded by the building. In such a case, it is said, the rental value of the space occupied by the owner-tenant, Seagram, must be valued not in proportion to the value of space occupied by the other tenants but at some higher value that reflects the business advantage accruing to one whose name is associated with such an outstanding and well-known building. Since the petitioner failed to so value its space it is held to have failed to carry the burden of showing excessive assessment.

Although this court has no general power to review the fairness and accuracy of real property assessments (Matter of City of New York [Fourth Ave.], 255 N. Y. 25), yet, where the Appellate Division has made explicit its method and the elements of value considered, any errors of law therein are presented to us for review. (People ex rel. Kings County Light. Co. v. Willcox, 210 N. Y. 479, 492; People ex rel. Jamaica Water Supply Co. v. State Bd. of Tax Comrs., 196 N. Y. 39, 53; People ex rel. Rome, W. & O. R. R. Co. v. Hicks, 105 N. Y. 198, 202, supra; Matter of City of New York [Exterior St.], 285 N. Y. 455, 458; of. People ex rel. Hotel Paramount Corp. v. Chambers, 298 N. Y. 372.) The Appellate Division could have granted leave to appeal in this case for no other reason than to bring its legal theory of value up for review.

The narrow and highly technical character of the rule applied by the Appellate Division may be highlighted by comparison with Matter of Pepsi-Cola Co. v. Tax Comm. of City of N. Y. (19 A D 2d 56, supra) decided by the same court three months after the instant case. There, the court was confronted with a brand new structure quite similar in novelty to the Seagram Building in that it " is unusually distinctive and individualistic in appearance, [and] is set back approximately 14 feet on Park Avenue and 34 feet on 59th Street to provide on said sides a promenade and plaza ornamented with plants and shrubbery.” (19 A D 2d, p. 57.) Yet the court held that it is not “ in the same category as the Seagram Building, that is, a newly-erected structure built especially for prestige and advertising value as well as for the headquarters use of its owner.” (19 A D 2d, p. 59.) Since both are new, held for business rental, and used as headquarters for the owner, the only difference is the presumed benefit accruing to the Seagram Company from having its name associated with an architecturally superior and well-known building.

“ Value ” under section 306 of the Real Property Tax Law is market value given willing sellers and buyers (Administrative Code of City of New York, § 158-1.0; People ex rel. Parklin Operating Corp. v. Miller, 287 N. Y. 126, 129, supra; People ex rel. Gale v. Tax Comm. of City of N. Y., 17 A D 2d 225). In our view, this approach to value necessarily excludes any element that is unique to the present owner of a building. Any increment in Seagram’s outside business enterprises deriving from public appreciation of the Seagram Building will not pass to a buyer of the building in a sale. Such an element would disappear if the building were sold to another investor, engaged in another business or in no business at all, other than real estate investment. The good will follows Seagram and cannot be regarded as real property value inherent in the building itself.

Of course, the prestige of the Seagram Building undoubtedly enhances the value of the building in any hands. This is undoubtedly real estate value—value which is transferable in a sale, and for which a buyer will pay. Such value also affects the rental commanded by the building. But, if tenants are willing to pay more for space in the Seagram Building than for similar space elsewhere, that is fully reflected in the capitalization of earnings. In turn, it would seem to follow that such capitalization adequately comprehends any increase in value that the building would bring in a sale—without resorting to concepts foreign to real estate value.

By the consideration of a so-called value element without regard to its place in light of the ultimate statutory norm of market value, and thereby displacing income capitalization as an acceptable measure of value and giving undue prima facie effect to cost, the Appellate Division has committed legal error for which the order appealed from should be reversed and the case remitted for reconsideration without regard to any supposed theory that the building is a specially built structure representing more of a real estate investment in its owner-occupant’s business than a commercial office building.

Judges Dye, Furd and Bergan concur with Chief Judge Desmond ; Judge Burke dissents in a separate opinion in which Judges Van Voorhis and Scileppi concur.

Order affirmed. 
      
       The city offered no testimony as to economic value, i.e., capitalization of net income.
     