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At the hearings Senator Copeland said that at the rate of a million dollars a year this purchase would save the Government 25 million dollars in 25 years. Anyone might say that in a thousand years, on that basis, it would save the Government a thousand million dollars, and the last statement is no more silly than the former. It is not a fact that there would be any such saving in the first place, and what it might amount to in a 25-year period has no bearing on the question.

Mr. BOYLAN. Did I understand you to say that the Interstate Commerce Commission appraised it at $5,000,000?

Mr. BROIDO. Yes.

Mr. BOYLAN. I hold in my hand a copy of their appraisal, and it is $7,000,000.

Mr. BROIDO. I beg your pardon. In the Congressional Record of Tuesday, January 3, Mr. Blaine introduced the report of the Interstate Commerce Commission which said that the property was assessed by the city of New York at 742 million dollars; that taking out the permanent reservation made by the railroad, in their opinion, based upon a (reading)-consideration of the results produced by the different methods of appraisal outlined above, with major weight to the first, it is the conclusion of the Bureau that the value of the site occupied by the Post Office Building, subject to the permanent reservation in the subsurface for railroad use, is $5,000,000. The present value of the land and structure is found to be $7,000,000.

Mr. BOYLAN. That is correct.

Mr. BROIDO. They said, subject to the permanent reservation of the rights of the railroad.

Mr. BOYLAN. You said the property was worth that?

Mr. Broido. I beg your pardon; I said the property as acquired by the Government, subject to the reservations contained in the deed, the Interstate Commerce Commission found to be valued at 5 million doilars plus

Mr. BOYLAN (interposing). Plus the structure, it would be 7 million dollars.

Mr. BROIDO. They did not say that.
Mr. BOYLAN. Read the last sentence.

Mr. BROIDO. It says "the present value of the land and structure is found to be $7,000,000.” But it does not say it is found to be 7 million, subject to the reservation of the entire subsurface for railroad purposes.

Mr Boylan. That would be a qualification. It was already stated.

Mr. BROIDO. I will not argue about it. The fact is that when, on December 31, 1932, the Interstate Commerce Commission transmitted this appraisal the deed was not before it and it did not know of all these reservations in the deed that I have told you about. For example, its attention was not called to the fact that there was a reservation of 40 feet of the property for a set-back provision which I have above described. This 40 feet for the whole depth of the property, which is 275 feet, takes out of the value of the property approximately 10,000 square feet of floor space. If a 30-story building were erected on the property there would be 300,000 square feet of rentable area which could be utilized but which, under the present deed, is lost to the purchaser. If this area were worth only a dollar a square foot it would give the purchaser of the property an additional income of $300,000 per annum, less, of course, such area as would be required for hallways, and so forth.

While it is true that after my efforts with the Procurement Division of the Treasury last summer this set-back reservation was corrected so that now it is only approximately half of the original area that is lost, I say that the deed as corrected is still improper. The plot is a corner plot and under the zoning resolutions of the city of New York no set-back would be required on the southerly line of this property adjoining the Graybar Building. The set-back for light and air should have been created on the Graybar Building plot in the first place. As I have above pointed out, this plot is now burdened with the set-back restriction. Even though it has been corrected as between the seller and the Government this is in no wise binding upon the city of New York because, although the railroad has now agreed that it is only necessary for the Government to set back approximately 17 feet, the fact remains that there is an undertaking of record with the city of New York that the set-back would be 42 feet. If any purchaser were found who would ever purchase this property from the Government and he filed plans for a building, complying with the present arrangement between the Government and the railroad, he would be met by the undertaking in the building department that this corner plot would never be developed except with a 42 foot setback. Either the Graybar Building would have to be rebuilt, which is an economic impossibility, or the purchaser of the property, including the United States, could not improve the property without complying with the arrangement previously made with the city of New York.

Mr. Boylan. That is purely a speculative statement, representing your own opinion.

Mr. BROIDO. That is the opinion of the people who have studied the matter and who are familiar with the various phases of it. These things are all matters of record and just as a violation in the building department is a matter of record and affects the purchaser, so are these sworn affidavits by the owners of the Graybar Building filed in the building department matters of record that would be binding upon a subsequent purchaser unless the city of New York waived the provision in the agreements, and in the present matter the city of New York has not be consulted.

Mr. BACON. Is it not some advantage to the Government to have the tracks under the building? If they have the tracks under the building they can unload the mail more advantageously.

Mr. BROIDO. Certainly.
Mr. Bacon. So your main objection is that we are paying too much.

Mr. BROIDO. You are paying twice at least what the property is worth. You have already appropriated a million and a quarter dollars to remodel the building, and it was represented to Congress that it would be a remodeled building.

Since the transaction was completed, the Post Office Annex at Thirty-first Street and Ninth Avenue has been completed, and the railway mail is now going over there, and I believe that the need for a site this big no longer exists. The Post Office Department is seeking to have other departments occupy space in this building.

You must remember that when they get through with the alterations this building will have cost approximately 12 million dollars, and when you consider the question of value you must look at it from various angles. [Reading:]

1. The Grand Central Terminal Building, as Mr. Heckscher will tell you, was offered to the Government for 6 million dollars. The area of the site is larger and the building is an 18-story structure.

2. The two blocks on the east side of Lexington Avenue, owned by my clients, were offered to the Government. In each case the Government would have obtained a plot 60,000 feet in area upon which a new monumental structure could be built, planned to the Government's purpose and needs, and giving to the Government the use of the entire basement and subbasement for the whole area for the storage of Post Office Department trucks, which are now stored elsewhere. Each of these sites could be connected, our engineers have advised us, with the railroad tracks by a tunnel under Lexington Avenue. In each case the Government would own a fee, would own the undersurface all the way to the middle of the earth, and particularly the 40 feet of undersurface just under the sidewalk level, which has great value in this area. At each of these block fronts the owners offered to build such a building with such connection for the Government for a price not exceeding 10 million dollars for land, building, undersurface rights and all, and I say that you must take this into consideration in determining the value of the property which is here purchased.

3. It is common knowledge that since 1932 all of the assessments in the Grand Central area made by the city of New York have been in excess of the true market values of the properties. There are records of over 300 sales in the Grand Central zone, both private and forced, the average of which is far below the assessed valuation, and it cannot be doubted that the 1932 assessed valuation of 72 million dollars on this property greatly exceeded the true value.

4. The value fixed by the Interstate Commerce Commission, even though there may be some doubt about the language used, was admittedly made without taking into consideration all of the exceptions and reservations in the deed which the Government has accepted.

5. There can be no better indication of the value of this property than the value placed by the New York Central Railroad upon its own property in the immediate vicinity. You will recall that this Post Office property is on the south side of Forty-fifth Street at the corner of Lexington Avenue. Directly across the street, on the north side of Forty-fifth Street and occupying a similar corner, is the property known as 466 Lexington Avenue, which now belongs to the New York Central Railroad. It is a building somewhat larger in area than the Post Office Building and rises to a height of 18 stories. You will recall that here the railroad owns the building as well as the track, surface, and all the undersurface to the middle of the earth.

Although the railroad sold to the United States in 1932 the use of the air rights over the property on the south side of the street for $9,000,000, plus interest, together with an obsolete 6-story building, in 1935, the New York Central instituted a proceeding to contest the assessment made by the city of New York for tax purposes on its own 18-story building and the land under it across the street from the Post Office Building, as I have stated. In this certiorari proceeding, filed in the Supreme Court of the State of New York, the railroad filed a sworn statement of an officer of the New York Central in charge of its real estate, which sworn statement set forth that although the city of New York had assessed the land at $4,100,000, and the building at $4,400,000, or a total assessed valuation of $8,500,000, nevertheless the said land and 18-story building were not worth in excess of $6,500,000. The documents attached to this proceeding, which are on file and which are in the exhibits filed by me here today (exhibit 34), show that in 1929 the land was assessed at $3,450,000. It must be remembered in considering this that this officer of the railroad is speaking of all of the land, including the surface occupied by the tracks and all of the undersurface down to the middle of the earth. I contend that this sworn statement is a prime indication of what the value of the land in this area should be to the United States when the surface and all the undersurface area is occupied by the railroad. Bearing upon the value of the building which the Government is

purchasing, and which the Interstate Commerce Commission declared to be obsolete, light is thrown on its value by the statement of this officer of the New York Central with respect to the value of its own building on the opposite side of the street. This officer stated [reading]:

It is the opinion of the applicant that the requisite alterations to meet such competition could not be justified from an economic standpoint.

As is hereinafter pointed out, the land purchased for the post office is burdened with the easement of a roadway owned by the city of New York all along its western side. It is our contention that nothing in the act authorizes such an easement, but assuming it is authorized it affects the value of the fee, which is another thing which the Interestate Commerce Commission did not take into consideration. This roadway also runs around the main Grand Central Railroad Station, and in this same proceeding this same officer of the New York Central, in seeking a reduction of the assessment on the railroad station property for 1935, stated (reading]:

The plot of the applicant is encumbered with a perpetual easement enjoyed by the city of New York for roadway purposes, which easement circumscribes the entire perimeter of such plot except for a portion of its frontage on East Fortyfifth Street. This easement, on account of location along the greater part of the street frontage, the applicant feels affects the beneficial enjoyment of the fee owner to a much greater extent than is reflected in the present apportionment of the 1935 assessed valuation between the two parties in interest.

If this perpetual roadway easement to the city of New York affects the beneficial enjoyment of the railroad's own property, it must also affect the beneficial enjoyment and therefore the value of the property which the Government is purchasing. (Reading:)

6. The true measure of the value of the plot is after all only the rental value of the air-right site. In other words, it is the value of the usufruct of the property, that is, how much would it be worth to a builder to lease those air rights for the purpose of erecting and constructing a building on the site, assuming there were no restrictions such as here burden the property. It is this annual rental value, capitalized at let us say 3 percent, which is the interest figure used in the contract, which determines the true value of these air rights. I doubt if anyone ever heard of a case ever before in history where a lump sum has been paid for the purchase of air rights as one would purchase a fee.

In all of the cases in the New York Central-Park Avenue development in New York, as I have stated, and I believe also in Chicago (except where the Government purchased) those wbo erected buildings over railroad tracks pay only the annual rental charge or value. În the Park Avenue development there have been approximately 22 of these air-tight developments. Exhibit no. 18 analyzes these leases. It will be noted that although in the present instance the property is free of city taxes in practically all of the cases with private persons the railroad has agreed to pay half or at least some portion of the city tax, which diminishes the net amount received by it by way of rental for the air rights. In addition, in lots of these cases the railroad advanced moneys to the air-right developers for the construction of the building, which was to be amortized back by the builders. The prices paid per annum for these various properties naturally varies since the period involved runs from 1912 up almost to the depression, but the value of property for air-right purposes can best be seen from a comparison of some of the other plots (reading]:

(1) As Mr. Heckscher will tell you, the Grand Central Terminal plot, which uns from Lexington Avenue all the way to Park Avenue, pays a rental of $130,000

per annum, which capitalized at 3 percent represents only a capital value of approximately 44 million dollars. In addition, the railroad, I believe, pays a portion of the land tax.

(2) The Graybar Building lease, which was made almost at the height of the realty boom, calls for an annual payment of $300,000 until 1946, the net of which to the railroad is reduced by the fact that the railroad pays one-half of the land tax.

(3) The entire block from Lexington Avenue to Park Averrue, from Fortyseventh to Forty-eighth Streets, which contains over 80,000 square feet, was leased in 1923 for a rental of $150,000 per year to 1931, and thereafter at $246,996 until the expiration of the term, which is in 1940. The net is reduced by the obligation of the railroad to share the land tax equally.

(4) The Park Lane Hotel, running from Lexington Avenue to Park Avenue, from Forty-eighth to Forty-ninth Streets, calls for rental payment of $110,000 per year up to 1943, out of which the railroad must pay 50 percent of the land tax.

(5) The lease for the Barclay Hotel property, which lies between Lexington Avenue and Park Avenue (although not the entire distance) was made in 1925 and calls for a payment of $125,000 during the 20-year term, the railroad also paying part of the land tax.

(6) The Roosevelt Hotel property, running from Vanderbilt Avenue to Madison Avenue, from Forty-fifth to Forty-sixth Streets, made in 1922, called for a rental of $280,000 per year, the landlord to pay 27.5 percent of the land tax.

(7) The property from Vanderbilt Avenue to Madison Avenue, Forty-sixth to Forty-seventh Streets, calls for a ground rent of $135,000 from 1933 onward, the railroad to pay approximately 27 percent of the land tax.

(8) The lease covering the property form Vanderbilt Avenue to Park Avenue, from Forty-sixth to Forty-seventh Streets, calls for a ground rent of $110,000 per year, half of the land tax to be borne by the railroad.

It must be remembered, in considering the above values, that many of these leases have been modified since the beginning of the depression. A number of the properties have been involved in 77B proceedings. In many cases the railroad has been obliged to take over the hotels, such as the Park Lane and the Biltmore. Even the Waldorf-Astoria, which was a tremendous development of an entire block, required, we are informed, some kind of reorganization of the lease provisions. It may well be doubted if the economic rent of these air rights is in any of these cases as great as the amount set forth in the original leases, and it is of the utmost importance to note that in no case, even though these leases were made during good times, did the rent amount to anything like 3 percent on a $9,000,000 valuation. I believe that investigation by Congress would reveal the fact that the present rents of these air-right areas are much lower than the original rents, and, secondly, that not one of these capitalized would represent any such value as has been placed upon the air rights on the post-office site. I believe it is wrong in principle to pay a capital value for these air rights anyhow, but if a capital value is paid it should not be in excess of the capitalization of the fair rental charge.

From all of the angles considered above I think it can be conclusively demonstrated that the Government is paying an excess price for a fee value, and that in addition it is only getting the air-right value of the property

Mr. Bacon. Your contention is that the Government is paying too much for it?

Mr. BROIDO, That is correct.

I know I am not talking in the way the Post Office Department would like to think about this, but $5,000,000 represents a dollar a day for 15,000 men for a long period of time. It represents a dollar a day for 15,000 men on relief for 360 days.

Mr. Bacon. Your contention is not that the Government should not build over the tracks, is it?

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