Trust Company of Australia Ltd v The Valuer General

Trust Company of Australia Ltd v The Valuer General - [2010] NSWLEC 1125 - NSWLEC 2010 case summary — Zoe

[20]

Consideration of the comparable sales evidence 32 20 Elsie Street, Burwood, submitted by both parties, is a substantial six level commercial building of approximately 4,100sqm lettable area being around five years old at the time of sale in May 2006 for $18.6 million. Mr Hepworth gave evidence that tenants of the building included CBA and government departments and that the likely purchaser profile comprised institutional investors. I accept Mr Hepworth's evidence that 20 Elsie Street, Burwood is a significant property investment and consider that the market would approach the valuation of the property as an investment, rendering the derivation of the land value from the sale price particularly challenging. Accordingly, as a source of evidence of land value, I consider this sale to be of limited relevance. 33 9 Deane Street, Burwood, submitted by both parties, was a sale in January 2009 which is around eighteen months after the Base Date. Evidence from Mr Hepworth and Mr Fogg indicated that the sale was to St Johns NSW who intended to refurbish and occupy the property with the transaction potentially not being an open market sale capable of satisfying the tests in Spencer v Commonwealth (1907) 5 CLR 418. Accordingly, I consider this sale to be of limited relevance. 34 15 Burwood Road, Burwood, submitted by the Respondent, was the subject of extensive evidence concerning the nature of the purchaser, who may have been associated with the vendor, with the transaction potentially not being an open market sale capable of satisfying the tests in Spencer v Commonwealth (1907) 5 CLR 418. Further, the sale was in March 2004 which is over three years before the Base Date. Accordingly, I consider this sale to be of limited relevance. 35 33 Burwood Road, Burwood, submitted by the Respondent, was the subject of extensive discussion during evidence concerning the nature of the purchaser, who may have been an adjoining owner or a party associated with an adjoining owner, and whether or not the property had been offered to the market at large. Given the uncertainty surrounding whether or not the transaction would be capable of satisfying the tests in Spencer v Commonwealth (1907) 5 CLR 418, I consider this sale to be of limited relevance. 36 Having regard to location, sale as land or as an improved property, site area, date of sale, frontage/aspect and zoning/development potential, the two remaining comparable sales may be compared with the subject property as follows. 37 21-23 Burwood Road, Burwood, submitted by both parties, sold close to the Base Date and had the same zoning/development potential as the subject property. However, the property was an improved sale, is superior to the subject property in terms of location and frontage/aspect and is very significantly smaller than the subject property. While having regard to the differences between this sale and the subject property, I consider this sale to be a directly relevant comparable sale. 38 1 Elsie Street, Burwood, submitted by the Applicant, sold close to the Base Date and was a sale of land. However, the property is superior to the subject property in terms of location and frontage/aspect, being very significantly larger than the subject property with a different zoning/development potential having an FSR of 2:1. While having regard to the differences between this sale and the subject property, I consider this sale to be a directly relevant comparable sale.

[28]

54 I note that Mr Hepworth adopted a more unconventional approach to the adjustment process and does not appear to have adjusted for differences between the directly relevant comparable sales and the subject property in terms of passage of time, size and frontage/aspect. 55 Conversely, I note that Mr Fogg adopted a more conventional approach to the adjustment process with explicit adjustment for differences between the directly relevant comparable sales and the subject property in terms of zoning/development, location, passage of time, size and frontage/aspect. 56 Concerning adjustment for zoning/development potential, I note that the subject property is zoned 3(c3) with a permissible floor space ratio of 1.5:1 but that 1 Elsie Street, Burwood is zoned 3(c2) with a permissible floor space ratio of 2:1. Accordingly, adjustment is required to the analysed rate for 1 Elsie Street, Burwood for zoning/development potential for application to the subject property. 57 Further, I note that for a hypothetical site of 1,000sqm, the permissible floor space area on an FSR of 1.5:1 would be 1,500sqm and on an FSR of 2:1 would be 2,000sqm, being approximately 33% larger. Following Mr Hepworth's evidence, I consider that a hypothetical purchaser may be likely to pay more for a site of 1,000sqm with a permissible FSR of 2:1 than for a site of 1,000sqm with a permissible FSR of 1.5:1. 58 Concerning adjustment for passage of time, Mr Fogg gave evidence based upon the analysis of repeat sales and with regard to statistics provided by a national property data organisation that there was a general rise in commercial property values from 2006 to 2008 equating to approximately 5%pa. Mr Hepworth gave evidence based on judgment that commercial property values remained unchanged over the period 2006 to 2007 and softened in the period 2007 to 2008. However, I note that the directly relevant comparable sales are transactions in March and April 2007 being close to the Base Date such that little, if any, adjustment may be required. I note that, based on Mr Fogg's evidence, a period of up to approximately three to four months would equate to an approximate adjustment of 1.25% - 1.67% for passage of time. 59 Having regard to Mr Hepworth and Mr Fogg's analysis of the sale of 21-23 Burwood Road, Burwood and adjustment for application to the subject property, I prefer Mr Fogg's approach which I consider to be a more conventional approach. 60 Concerning Mr Fogg's analysis of the sale of 21-23 Burwood Road, Burwood, I note that Mr Fogg estimated the replacement cost of the building to be $2,828,775 (based on an FSR reflecting the existing building on the site rather than the permitted FSR) and the cost to renovate to new to be $2,500,000 (which Mr Fogg was unable to substantiate in evidence) implying depreciation of 88.4%. I further note in the Joint Statement, Mr Hepworth adopted a depreciation rate of 57.5%, from within a band of 55%-60%, which I consider to be more appropriate given the characteristics of the property. Accordingly, I note that if a depreciation rate of 57.5% is expressed as the cost to renovate to new in Mr Fogg's analysis, the Land Value at date of sale may be approximately $1,301psm and at the Base Date may be approximately $1,369psm rather than the rates of $2,806psm and $2,873psm, respectively, referred to in the table above. 61 Concerning Mr Fogg's application of the analysed rate from 21-23 Burwood Road, Burwood to the subject property, I note that Mr Fogg made adjustments of +10% for location, -40% for size and -5% for frontage/aspect.

[29]

62 Concerning the adjustment for location, I note that the addition of 10% represents Mr Fogg's opinion that 21-23 Burwood Road, Burwood is an inferior location to the subject property which I do not accept and note that Mr Hepworth gave evidence in Court that he considered 21-23 Burwood Road, Burwood to be a superior location. I consider that, on balance, the subject property location is, at best, comparable and potentially inferior such that a downward adjustment should be made to the analysed rate for application to the subject property. The effect of a downward adjustment for location would be to reduce the adjusted rate for application to the subject property. 63 Concerning Mr Fogg's adjustment for size, I consider the adoption of an adjustment of 40% to be at or beyond the upper bounds of reasonableness of adjustment in this case. Accordingly, to reflect the comparability of the sale, I consider a smaller downward adjustment should be made to the analysed rate for application to the subject property. The effect of a smaller deduction for size would be to increase the adjusted rate for application to the subject property. 64 Concerning Mr Fogg's adjustment for frontage/aspect, I note that the deduction of 5% represent's Mr Fogg's opinion of the relativity of the superiority of a Burwood Road frontage/aspect to a Victoria Street frontage/aspect. I concur with Mr Fogg that a deduction is appropriate but consider that this should be much greater reflecting the relativities of the respective frontage/aspects. The effect of a larger deduction for frontage/aspect would be to reduce the adjusted rate for application to the subject property. 65 Accordingly, therefore, I consider that a downward adjustment for location, smaller deduction for size and larger deduction for frontage/aspect would potentially have the cumulative impact of very significantly decreasing the $1,301psm amended analysed rate as at the date of sale, referred to above, to a level in the range of below to approximating the $827psm ($1,530,000) contended by the Applicant for the subject property.

At a glance

Court

Decision date

Before

Source

Judgment (42 paragraphs)

Parties

Cases Cited (2)