Title: Snyder Plaza Properties v. Adams Outdoor Advertisi
Citation: N/A
Docket Number: 991306
State: Virginia
Issuer: Virginia Supreme Court
Date: April 21, 2000

Present:  Carrico, C.J., Lacy, Hassell, Keenan, Koontz, and 
Kinser, JJ., and Whiting, Senior Justice 
 
SNYDER PLAZA PROPERTIES, INC. 
 
v.  Record No. 991306   OPINION BY JUSTICE BARBARA MILANO KEENAN 
 
 
 
April 21, 2000 
ADAMS OUTDOOR ADVERTISING, INC. 
 
 
FROM THE CIRCUIT COURT OF THE CITY OF NORFOLK 
Everett A. Martin, Jr., Judge 
 
 
In this appeal of a declaratory judgment, we consider 
whether the chancellor properly approved a report of a 
commissioner in chancery that fixed the value of a leasehold 
interest in a portion of a parcel of condemned property. 
 
Snyder Plaza Properties, Inc. (Snyder) owned a parcel of 
land, which was used as a parking lot and was bounded by St. 
Paul's Boulevard, City Hall Avenue, and Plume Street in the 
"downtown financial district" of Norfolk.  Since 1953, Snyder 
had leased a portion of the land to Adams Outdoor Advertising, 
Inc. (Adams), or its predecessor, to permit the installation and 
maintenance of four 12' X 25' billboard signs.  Adams, in turn, 
engaged in the business of renting space and installing 
advertising on the billboard signs. 
 
In July 1995, the City of Norfolk (the City) exercised its 
power of eminent domain and condemned Snyder's property.  Snyder 
and the City reached a settlement agreement concerning the value 
of the property taken.  The City agreed to pay Snyder $2.4 
million "plus up to . . . ($38,000) to pay one-half (½) of 
Snyder's settlement with Adams Outdoor Advertising." 
 
At the time of the condemnation, Snyder and Adams had in 
effect two written leases involving the four billboard signs.  
The leases, dated January 3, 1990, were each for a term of three 
years with a provision for an automatic renewal for a term of 
five years (collectively, the initial terms).  The leases stated 
that they "shall continue year-to-year thereafter unless 
terminated by either party," and that Snyder reserved the right 
to cancel the leases "if the property is sold or developed."  In 
paragraph 9, the leases provided: 
In the event of condemnation or threat of 
condemnation, Lessee [Adams] shall have the right to 
timely participate in any condemnation award or 
settlement to the extent of Lessee's damage for the 
loss of revenue of the structure; the costs of removal 
from the above-described premises; replacement costs; 
and, the loss of its leasehold interest and other 
related damages. 
 
 
After Snyder's condemnation settlement with the City, 
Adams filed this declaratory judgment suit against Snyder, 
seeking a determination of the amount of damages to which 
Adams was entitled as a result of the condemnation.  The 
trial court referred the matter to a commissioner in 
chancery, who was directed to receive evidence and make a 
recommendation regarding the damages due to Adams. 
 
2
 
At an evidentiary hearing, the commissioner heard 
testimony from three real estate appraisers concerning the 
value of Adams' leasehold interest.1  Adams' principal 
expert witness was Donald T. Sutte, a licensed real estate 
appraiser, who testified that he used two types of analyses 
to determine the leasehold's value, a sales comparison 
approach and an income approach.  Under the sales 
comparison approach, Sutte determined that the leasehold 
value was $112,300.  Under the income approach, he 
determined that the value of Adams' leasehold interest was 
$98,800. 
 
Sutte stated that the sales comparison approach was 
the "most valid" method of appraising Adams' interest, and 
explained that this method of valuation was commonly used 
throughout the outdoor advertising industry.  Using that 
method, Sutte examined eight recent sales of similar 
leasehold interests involving billboard signs located in a 
number of other states.  He divided the leasehold sale 
price in each transaction by the annual gross income 
generated by the billboard signs involved in the sale, to 
arrive at a "gross income multiplier" for each transaction. 
                     
 
1Adams did not present evidence concerning any other element 
of damage. 
 
3
 
The range of "gross income multiplier[s]" resulting 
from the eight comparison sales was 2.97 to 7.04.  Sutte 
testified that a "gross income multiplier" range of 3.0 to 
6.0 has remained fairly constant in the outdoor advertising 
industry over the past ten years.  Based on the desirable 
location of the billboard signs at issue, their long 
history at that location, and the lack of any other 
billboard signs in the general area, Sutte used a "gross 
income multiplier" of 4.0 to value Adams' leasehold 
interest. 
 
Sutte next determined the annual "economic rent" of 
the billboard signs.  He explained that this term 
represents the annual rent that the billboard signs should 
command in the marketplace.  He calculated this amount by 
including such factors as each sign's location, rental 
history, and daily effective circulation.  Sutte concluded 
that the annual economic rent of the billboard signs was 
$31,200.  From that amount, he subtracted a 10% figure for 
vacancy and collection losses to arrive at the effective 
gross annual income of the billboard signs, which he 
calculated at $28,080.  Sutte multiplied this amount of 
effective gross annual income by the "gross income 
multiplier" of 4.0 to conclude that Adams' leasehold 
 
4
interest in the subject billboard signs had a market value 
of $112,300. 
 
Sutte testified that although only 30 months remained 
on the initial terms of Adams' leases with Snyder at the 
time of the condemnation, there was "no reason to believe" 
that the leases would have been terminated had the property 
not been condemned.  He explained that all the national 
sales he used as comparisons involved the sale of similar 
leasehold interests, and that the risk of termination of 
the leases at issue was factored into the "gross income 
multiplier" he used to arrive at his valuation. 
 
Under his alternative method, the income approach to 
value, Sutte subtracted sign vacancy and collection losses 
from the billboard signs' annual economic rent of $31,200 
to reach the effective gross annual income figure of 
$28,080.  From this annual gross income amount, he 
subtracted operating expenses to yield a net annual 
operating income of $14,321.  He applied a capitalization 
rate of 14.5% to the "net operating income" amount to reach 
his leasehold valuation of $98,800. 
 
Adams presented the testimony of another licensed real 
estate appraiser, Gregory A. Hanson, who used the sales 
comparison approach to determine the value of Adams' 
leasehold interest.  Hanson agreed with Sutte that this 
 
5
method of valuation was commonly used in the outdoor 
advertising industry.  Applying a "gross income multiplier" 
of 3.4 to his calculation that the billboard signs had an 
annual gross income of $24,281, Hanson concluded that 
Adams' leasehold interest had a value of approximately 
$83,000. 
 
Hanson explained that the billboard signs at issue are 
no longer a permitted use under the existing zoning 
classification of Snyder's property and, thus, are a non-
conforming use of the property.  Under the terms of the 
leases, Adams owned the billboard signs and retained the 
right to remove them.  Hanson testified that if Snyder had 
terminated its leases with Adams, and Adams had removed the 
billboard signs, Snyder would have been unable to replace 
them.  Since continuation of the leases would have been 
"beneficial" to both Snyder and Adams, Hanson stated that 
he had "no reason to assume" that the leases would have 
been cancelled at the end of 30 months. 
 
Snyder presented the testimony of a licensed real 
estate appraiser, Bruce F. Hatfield, who stated that in his 
opinion, the fair market value of Adams' leasehold interest 
was $21,500.  Hatfield arrived at this sum by multiplying 
the net monthly income from the billboard signs, which he 
calculated at $436, by the number of months remaining on 
 
6
the leases, and then adding three years of "possible" 
renewal income and deducting the cost of removing the 
signs. 
 
Hatfield acknowledged that he had very limited 
experience in appraising leasehold interests in billboard 
signs.  He also stated that he was not aware that the 
billboard signs at issue had been located on the Snyder 
property since 1953.  Hatfield testified that he considered 
it likely that the leases would have been renewed for as 
much as three years beyond the initial terms.  However, he 
also concluded that the "demographics of downtown Norfolk, 
though, would dictate that sometime within a five-year 
period this property would fall to development or be sold." 
 
The commissioner issued a report in which he applied a 
variation of the income approach to reach his conclusion 
that the present value of Adams' leasehold interest on the 
date of condemnation was $61,731.05.  The commissioner 
arrived at this sum by incorporating Sutte's calculations 
of the billboard signs' annual economic rent, annual gross 
income, and annual net income.  The commissioner divided 
the billboard signs' annual net income of $14,321 by 12 to 
determine a "Monthly Net Sign Rental" amount of $1,193.  
The commissioner multiplied this monthly income figure by 
60 months, which represented the "Remaining Term of Lease 
 
7
(31 months) and probable renewal (29 months)," and 
determined a "Total Income for Sign Rental" of $71,508.  
The commissioner discounted this "total income" figure to 
reflect the present value of Adams' leasehold interest, 
which he fixed at $61,731.05. 
 
Both Snyder and Adams filed exceptions to the 
commissioner's report, challenging the method adopted by the 
commissioner in determining the value of Adams' leasehold 
interest.  The chancellor overruled both parties' exceptions and 
entered judgment in favor of Adams in the amount recommended by 
the commissioner.  Snyder appeals from the final judgment and 
Adams assigns cross-error. 
 
On appeal of a chancellor's decree approving a 
commissioner's report, we apply an established standard of 
review.  A decree of this nature will be affirmed unless it is 
plainly wrong or without evidence to support it.  Lansdowne Dev. 
Co. v. Xerox Realty Corp., 257 Va. 392, 402 n.5, 514 S.E.2d 157, 
162 n.5 (1999); Lim v. Choi, 256 Va. 167, 171, 501 S.E.2d 141, 
143 (1998). 
 
Although a commissioner's report does not carry the weight 
of a jury verdict, Code § 8.01-610, a chancellor should sustain 
the report if the evidence supports the commissioner's findings.  
Lim, 256 Va. at 171, 501 S.E.2d at 143; Chesapeake Builders, 
Inc. v. Lee, 254 Va. 294, 299, 492 S.E.2d 141, 144 (1997); 
 
8
Morris v. United Virginia Bank, 237 Va. 331, 337-38, 377 S.E.2d 
611, 614 (1989).  This rule applies with particular force to the 
report's factual findings that are based on evidence that the 
commissioner heard ore tenus, but does not apply to pure 
conclusions of law contained in the report.  Id.  On appellate 
review, the commissioner's findings of fact that have been 
confirmed by the chancellor will be reversed only if they are 
plainly wrong or without evidence to support them.  Moore & 
Moore Gen. Contractors, Inc. v. Basepoint, Inc., 253 Va. 304, 
306, 485 S.E.2d 131, 132 (1997); Cooper v. Cooper, 249 Va. 511, 
518, 457 S.E.2d 88, 92 (1995). 
 
In its first three assignments of error, Snyder essentially 
contends that the commissioner erred in including in his 
valuation calculation an amount of lost income for 29 months 
beyond the initial terms of the parties' leases.  Snyder argues 
that since in a condemnation proceeding, a lessee generally is 
entitled to compensation only for the value of any remaining 
term of a lease, the commissioner was plainly wrong in 
considering a "mere expectation of renewal" in fixing the value 
of Adams' leasehold interest.  We disagree with Snyder's 
arguments. 
 
The commissioner's decision to calculate Adams' lost income 
over a period of 60 months was not plainly wrong or without 
evidentiary support.  That decision was supported by the 
 
9
language of the leases, the evidence concerning factors peculiar 
to the outdoor advertising industry, and the opinions of the 
three expert witnesses that it was unlikely that the leases 
would have terminated at the end of their initial terms. 
 
The lease language provided that the leases "shall continue 
year-to-year [after the initial terms] unless terminated by 
either party."  Donald Sutte explained that this type of lease, 
which provided an initial term of years followed by renewal 
options that included a termination clause in the event the land 
is sold or developed, is "typical" in the outdoor advertising 
industry, and that leases containing such provisions are bought 
and sold routinely on the open market. 
 
The commissioner was entitled to consider these renewal 
provisions in his valuation calculation, based on his factual 
finding that "there is a good likelihood that the leases would 
[have] be[en] renewed until the site was converted to develop 
office buildings, multifamily high rises and the like.  Mr. 
Hatfield saw that day to be no more than five (5) years from the 
date of the taking."  The commissioner noted that the billboard 
signs had been located on Snyder's property for several decades.  
He also observed that Snyder's own expert had testified that it 
was likely that the leases would have "roll[ed] over" for 
another two or three years beyond the period remaining on the 
initial terms.  We conclude that this testimony and evidence 
 
10
supports the commissioner's decision to calculate Adams' lost 
income over a 60-month period.2
 
Snyder next asserts that the commissioner erred in 
admitting testimony that the annual economic, or market, rent of 
the billboard signs was $31,200, when the actual annual rent was 
$24,282.  Snyder also contends that the commissioner's use of 
the economic rent figure was inappropriate, alleging that Sutte 
and Hanson calculated that amount based on "fee simple interest 
rather than leasehold interest."  We find no merit in these 
arguments. 
 
Initially, we observe that Snyder is incorrect in its 
assertion that Sutte and Hanson calculated annual economic rent 
"based on a fee simple interest."  After Snyder raised this 
objection during Sutte's testimony at the commissioner's 
hearing, Sutte restated the fact that his calculations were 
based on his appraisal of Adams' leasehold interest.  Hanson 
                     
 
 
2Snyder also alleges that the chancellor erroneously 
accorded credibility to testimony from Sutte and Hanson that 
"there was no difference between the leasehold interest and the 
fee simple interest of the plaintiff."  In addition, Snyder 
asserts that the chancellor erred when he "permitted evidence of 
national sales of outdoor sign companies outside of Virginia as 
comparable[] to a leasehold interest in this particular case."  
These allegations inaccurately characterize the testimony of 
Sutte and Hanson, as well as the evidence of comparable sales 
presented to the commissioner.  Moreover, we discern no basis 
for concluding that either the chancellor or the commissioner 
based their calculation of Adams' damages on such evidence or 
theories. 
 
11
likewise testified that he appraised the value of the leasehold 
interest. 
 
We also disagree with Snyder's assertion that the 
commissioner erred in admitting and ultimately adopting the 
expert testimony concerning the economic rent of the billboard 
signs.  We previously have recognized the distinction between 
economic rent and actual contract rent in the valuation of a 
leasehold interest in condemned property.  In Exxon Corp. v. M & 
Q Holding Corp., 221 Va. 274, 269 S.E.2d 371 (1980), we 
considered a trial court's ruling in a condemnation proceeding 
denying a lessee recovery of the value of its leasehold interest 
in the condemned property. 
 
In that case, Exxon Corporation, which had operated a 
gasoline station on the condemned property, presented two 
witnesses at the condemnation proceeding who testified 
concerning the value of its leasehold interest.  The experts 
applied a methodology that in part used the economic, or market, 
rent of the leased parcel to obtain the differential amount 
above Exxon's actual contract rent that Exxon lost as a result 
of the condemnation.  221 Va. at 281, 269 S.E.2d at 376-77.  In 
reversing the trial court's judgment denying Exxon the value of 
its leasehold interest, we noted that the valuation method used 
by Exxon's appraisers had been applied previously in this and 
other jurisdictions.  221 Va. at 280-82, 269 S.E.2d at 375-77. 
 
12
 
In the present case, we conclude that the commissioner did 
not err in accepting Adams' expert testimony concerning the 
economic rent of the billboard signs in valuing the leasehold 
interest.  Sutte explained, in considerable detail that we need 
not repeat, the factors he considered in calculating the 
economic, or market, rent generated by the billboard signs.  The 
commissioner, in his role as fact-finder, found that Sutte's 
economic rent figure was the most accurate reflection of the 
billboard signs' value to Adams, and the chancellor confirmed 
this finding.  This conclusion is supported by the evidence and 
is not plainly wrong. 
 
Snyder also argues that the commissioner erred in 
prohibiting Louis D. Snyder, the president and part owner of 
Snyder Plaza Properties, Inc., from testifying regarding his 
opinion of the value of Adams' leasehold interest.  The 
commissioner based his ruling on Snyder's failure to identify 
Louis Snyder as an expert witness on the subject of valuation of 
the leasehold interest, in response to interrogatories 
propounded by Adams.  Snyder argues that Louis Snyder, as an 
"owner," was qualified to express a lay opinion regarding the 
value of the leasehold interest, and that Snyder had no 
obligation to list him as an expert witness in response to 
Adams' interrogatories.  We disagree with Snyder's argument. 
 
13
 
We have recognized the general rule that an owner of 
property is competent and qualified to render a lay opinion 
regarding the value of that property.  Haynes v. Glenn, 197 Va. 
746, 750, 91 S.E.2d 433, 436 (1956); see Parker v. Commonwealth, 
254 Va. 118, 121, 489 S.E.2d 482, 483 (1997); Walls v. 
Commonwealth, 248 Va. 480, 482, 450 S.E.2d 363, 364-65 (1994).  
This rule does not apply here, however, because Louis Snyder was 
not the owner of Adams' leasehold interest, which was the 
property about which he sought to state an opinion. 
 
Snyder, citing Kerr v. Clinchfield Coal Corporation, 169 
Va. 149, 192 S.E. 741 (1937), asserts, nevertheless, that he was 
competent to testify as a lay witness.  In Kerr, we recited the 
general principle that a witness, who is not a true expert, may 
give evidence regarding the value of real estate based on a 
demonstrated acquaintance with the property at issue or with 
properties of like general character and location.  Id. at 156, 
192 S.E. at 743.  In the present case, however, Snyder made no 
claim that Louis Snyder had any knowledge concerning leasehold 
interests in the outdoor advertising industry or the type of 
leasehold interest at issue.  Therefore, we conclude that the 
commissioner did not abuse his discretion in excluding Louis 
Snyder's proposed valuation testimony. 
 
Adams assigns cross-error to the chancellor's confirmation 
of the valuation method used by the commissioner.  Adams argues 
 
14
that the commissioner and the chancellor should have applied the 
sales comparison approach using "gross income multipliers," 
instead of using an income approach.  We disagree with Adams' 
argument, because Adams' own appraiser, Sutte, testified that an 
income approach was an acceptable method of valuing a leasehold 
interest, although he preferred a sales comparison approach of 
valuation.  The commissioner and chancellor were not obligated 
to accept Sutte's evaluation of the merits of the two methods.  
Since the record contains evidence supporting the method used by 
the commissioner, we conclude that there is no error in the 
chancellor's decision confirming the use of that method.  Thus, 
we hold that the chancellor did not err in approving the 
commissioner's report and in entering judgment in accordance 
with the commissioner's recommendation. 
 
For these reasons, we will affirm the chancellor's 
judgment. 
Affirmed. 
 
15