We start any evaluation of a parcel which has been taken by the exercise of eminent domain by the application of the overriding principal of the concept of highest and best use.
The concept of highest and best use is well founded in appraisal practice. Regardless of whether property has been condemned, in valuing any parcel of real estate an appraiser must make a highest and best use of the land analysis as though the property were vacant and as though it were improved. This is an essential part of the valuation process. The Appraisal of Real Estate, 278, (13th ed) Appraisal Institute.
The definition provided by the Appraisal Institute is “the reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value.”
A highest and best use must be established as reasonably probable. A claimant does not have to prove every aspect of the highest and best use in the near future absolutely. But a use that is no more than a speculative or hypothetical arrangement in the mind of the claimant may not be accepted as the basis for an award. Triple Cities Shopping Ctr. v State of New York, 26 AD2d 744, aff’d. 22 NY2d 683 (1968). For example, a vacant parcel of land may be valued as a subsidized housing site provided there is a proper showing of probability that a subsidy would have been granted, and upon proof that such a project could or would have been constructed in the foreseeable future. The fact that governmental activity is required to achieve a use does not necessarily disqualify the use from consideration.
The standard employed in a condemnation case is that of a prudent real estate investor. A claimant is never limited to what the owner has done to its property. Rather, the law allows a condemnee to have its property valued on the basis of what could be reasonably accomplished by a prudent, knowledgeable real estate investor.
The Border Parcel
Sometimes, however, it is hard to imagine a highest and best use for land. This is certainly true with unusually configured land.
What follows is a diagram of land highlighted in yellow which basically surrounds land which the claimant sold. It amounts to a narrow parcel that is circular in shape. The land was partially condemned for the construction of the Kosciusko Bridge connecting Greenpoint, Brooklyn to Maspeth, Queens. This unusual parcel had limited access to an open street.
What is the highest and best use? The parcel was much too narrow to build on. After study with an excellent real estate appraiser and civil engineer, we adopted a highest and best use of storage of inventory cars for auto dealers. This was the result of one of my first clients, an auto dealer. I knew that there was always a problem in finding storage space for auto inventory.
It worked. After trial, the Court awarded $5,965,615, over 12 times the state’s appraisal.