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been employed in the valuation of railway terminal lands. He contends that the reproduction value of terminal land should not be based on the lócations immediately adjoining the terminal. Locations immediately adjoining the terminal are much sought after for certain uses and consequently the market price is apt to be much higher than that of surrounding land which has not been affected by the location of the terminal. Because the adjoining locations are valued so highly, it does not follow that the terminal land has a similar value. In case of the removal of the existing terminal and the sale of the terminal site it would not bring the price at which adjacent property is now selling and such adjacent property would itself decline in value. He contends that the value to be placed on the terminal land is the value that the land would have if the terminal were not present. Mr. Baker says (at pages 240-246):

Locations adjoining a terminal are much sought after by factories, wholesale houses, elevators, and warehouses, because such access saves drayage, expedites shipments, and makes it possible to handle some heavy kinds of goods which otherwise could not be bought or sold at all. . . . Because this adjoining space is valued so highly, appraisers have considered that the terminal spaces have a similar value. But this conclusion does not follow. Mark you, the competition is for the space adjoining the terminal, not for the space which the terminal occupies. Business houses do not want to supplant the terminal. Not at all. They want it to stay right there. What they want is simply to be next to the terminal. Suppose the terminal attempted to sell the whole area it occupies. It is very clear that unless some other very potent influence were brought to bear on the situation, no such prices could be obtained for the whole or any part as are paid for the bordering properties. . . . The value which should be allotted to terminals is not what it would cost to buy up these feverishly competitive fringing properties, but what the land would be worth.

if the terminal and its satellites were not present. . . . What the cost would be to a new company to build a terminal beside the one to be valued, or to the present owner to make extensions or enlargements, has nothing to do with the values of lands which are owned now. In the first place an invading company would never build a terminal alongside of the old resident. It is far better business to build in a less expensive section and wait for the business to come to it, which it always does in time. . . . If the old terminal does make the enlargement, of course its actual investment should be given full weight.

The author goes on to state that in case during the history of a terminal there have been several enlargements so that the entire terminal if now valued on the basis of other-use-with-the-railroad-absent would show less than actual cost, that this condition should be recognized and the valuation so fixed that it will at least represent the actual cost of the terminal to the company. The author concludes (at page 249) that unless his method of valuing terminal land is adopted:

The only other avenue of escape from increasing rates is for government to take the other horn of the dilemma and deny the use of any value except that of the original cost-the few hundred dollars instead of the many millions. Indeed this procedure is seriously proposed. Using the argument of Alfred Crozier in the Magnet some declare, "eminent domain is a loan of governmental power. . . instead of a grant of property... Any extra value or profit received by the corporation as a result of exercising that borrowed power must belong to the public-not to the corporation." Anything beyond a fair interest rate upon the funds actually invested must therefore go to the public in the form of increased service or lower rates. The "unearned increment" is not to be divided, but is to go entirely to the public, for the railroad is discharging a public function as the agent of government, and railroad share

holders are duly compensated by a fair return upon their in

vestment.

It should be noted with reference to Mr. Baker's argument, that the influence of railway terminals is not necessarily one of appreciation in the value of adjoining property. In some cases adjoining property is seriously depreciated in value. A given terminal may appreciate certain adjoining property and depreciate other adjoining property. Residence property will usually be depreciated. A similar question arises in the valuation of a gas plant with reference to the present value of land occupied by gas holders. Neighboring property is often depreciated by the existence of a gas holder. This being so, should the value of the land occupied by the holder be based on the present value of adjacent land or on the increased value that such land would have if the holder were not there?

§ 145. Reproduction cost of land as affected by cost of hypothetical buildings.

Re Metropolitan Street Railway Reorganization, 3 P. S. C. 1st D. (N. Y.) 113, decided February 27, 1912, is an application for the approval by the New York Public Service Commission for the First District of an issue of securities subsequent to reorganization. As to the value of the land, the applicants submitted appraisals by their experts as to the land alone, on the assumption that there were no buildings upon the property and that the land was about on a level with the street, and separate "costto-reproduce" valuations of the buildings in fact on the property, on the assumption that the buildings were to remain for many years, until their usefulness for street railway purposes should cease. The applicants contended that the valuations should be based on the assumptions (1) that the applicants' street railway system did not

exist but that the city were otherwise as it is to-day; (2) that an imaginary company starting in under such circumstances would seek to duplicate the system which the applicants in fact have; (3) that it would want, for car storage barns and similar purposes, the exact parcels now owned by the applicants' system, even though the parcels still used by the applicants' system for such purposes are located in highly developed and valuable areas; (4) that upon every such parcel the imaginary carrier starting anew would find buildings similar to those now surrounding the property; (5) that it would proceed to tear them down and erect other buildings on the land, the value of the land itself to be added to the reproduction cost of the buildings torn down and the reproduction cost of the buildings now in fact maintained on the land by the applicants' system, to arrive at the fair present value of the land and buildings. The applicants presented no data showing that when the land was actually acquired, buildings were in fact torn down. The Commission did not accept this theory of land valuation. The Commission says (at pages 139, 140):

The theory is clear. The applicants assume that the Metropolitan system does not exist, that otherwise the city is as it is to-day, that an imaginary company starts in to duplicate the existing system, that it would want the exact parcels now owned by the Metropolitan system, that upon every parcel it would find buildings similar to those now surrounding the property, and that it would proceed to tear them down and erect other buildings on the land.

There are several violent assumptions in this list, but one illustration will suffice. The Metropolitan Company owns a whole block bounded by Fourth and Lexington Avenues, and 32d and 33d Streets. North and west of this block stand the Seventy-first Regiment Armory, the new Vanderbilt Hotel and the Park Avenue Hotel, South and east are apartments,

stores, warehouses, etc. Mr. Wheelock estimates the market value, plus cost of acquisition, of the land in the block at $1,680,000, and at the request of counsel adds $340,000 to represent the cost of buildings like those just mentioned which it is assumed would be razed to make way for a one-story car barn; and counsel asks that the Commission find the fair value of the land in this one block to be practically $2,000,000.18 In another instance, the imaginary buildings are said to increase the "value" of the land by over 50 per cent. of what is acknowledged to be its fair value as between a willing buyer and a willing seller.

If this theory be sound, then when the block comes to be entirely surrounded with buildings of fifteen or twenty stories (that is the tendency in that district), the capitalizable value of that land will be not only the fair market value of the land itself, but that value plus the cost of these ten, fifteen or twentystory buildings, upon the assumption that "such buildings would be cleared off." The company could then with equal propriety appear before the Commission and ask that securities be authorized for the difference between the estimated cost of the surrounding buildings at present and the cost of the taller buildings then existing.

The Commission does not accept any such theory as proper or as affording the basis for determining the reasonable value of the land, and no precedents or court decisions have been cited to support it. It should be noted, also, that the applicants have not presented any data from the records of the company to show that when the land was actually acquired buildings were torn down. If a company were forced to make such expenditures, they might be charged to capital subject, perhaps, to amortization in part, but that is not the situation at present. No such facts have been shown, and the question is not what might be done to increase expense, but what is the present reasonable and fair value of certain real property-not including imaginary buildings.

18 It should be noted that the imaginary improvements to be purchased and thrown away are not valued at their scrap value but as commercial enterprises.

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