1776 Plaza Limited Partnership v. Board of Assessors of the Town of Sudbury (June 4, 2014)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD

1776 PLAZA LIMITED PARTNERSHIP   v.        BOARD OF ASSESSORS OF 
	     					        TOWN OF SUDBURY

Docket Nos. F315503 (FY 2012)
            F318590 (FY 2013)			   Promulgated:
								   June 4, 2014

	These are appeals under the formal procedure, pursuant to G.L. 58A, § 7, G.L. c. 59, §§ 64 and 65, and 831 CMR 1.03 and 1.04, from the refusal of the Board of Assessors of the Town of Sudbury (the "assessors" or "appellee") to abate taxes on a parcel of real estate in the Town of Sudbury owned by and assessed to 1776 Plaza Limited Partnership (the "appellant") under G.L. c. 59, §§ 11 and 38 for fiscal years 2012 and 2013.
	Commissioner Rose heard these appeals.  Commissioners Scharaffa, Chmielinski, and Good joined him in the decisions for the appellant.
	These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.

	Matthew A. Luz, Esq. for the appellant.

	Paul L. Kenny, Esq. for the appellee.


FINDINGS OF FACT AND REPORT
Introduction
	On January 1, 2011 and January 1, 2012, the valuation and assessment dates for fiscal years 2012 and 2013, respectively the appellant was the assessed owner of an approximately 8.1-acre parcel of land located at 447 Boston Post Road (Route 20) in Sudbury, which the assessors identified as parcel K08-0003.  The subject parcel is improved with two freestanding buildings - a 48,981-square-foot, multi-tenanted, retail building and a 2,420-square-foot, restaurant building (the "subject property").  The site also contains parking for 238 vehicles. 
While Sudbury is generally regarded as a higher-end residential community, the part in which the subject property is located is zoned for and is populated primarily with commercial properties.  The subject property is, therefore, a legally conforming use.  The immediate area surrounding the subject property is developed with a mix of commercial, residential and industrial use properties, including an abutting multi-tenanted strip plaza and nearby retail stores, restaurants, office buildings, gasoline service stations, and another strip plaza.  
The subject property's buildings contain a combined total of 51,401 square feet of leasable area.  The multi-tenanted retail building, which was built in 1962, is a steel frame structure constructed on a concrete slab with a partially flat and partially gabled roof.  It has a brick, concrete and dryvit exterior.  The restaurant building, which was built in 1965, has a wood frame structure on a concrete slab with a gable roof and a brick exterior.  It is currently, and at all relevant times was, under a long-term land-lease.  Both buildings have adequate systems and bathrooms and are considered by the parties to be in average to good condition. 
 Jurisdiction    
For fiscal years 2012 and 2013, the assessors valued the subject property at $5,800,000, and assessed taxes thereon in the amounts of $133,110 and $136,416, respectively.  For both fiscal years at issue, the appellant timely paid the taxes due without incurring interest.  The appellant also seasonably filed its abatement applications and the petitions appealing their denials.  The dates corresponding to these filings are listed in the following table.



Fiscal Year	Date Tax Bill Mailed	Date Application for Abatement ("AA") Filed	Date AA Denied or Deemed Denied	Date Petition Filed at Board	
2012	12/27/2011	      02/01/2012	05/01/2012	05/09/2012	
2013	12/30/2012	      01/04/2013 	02/07/2013	02/25/2013	


On this basis, the Appellate Tax Board (the "Board") found and ruled that it had jurisdiction over these appeals.
 The Evidence 
	The appellant presented its case-in-chief through the testimony of its real estate valuation expert, Eric Wolff, and his summary appraisal report.  In defense of the assessments, the assessors called to testify Bradford Dunn, an assessor for Sudbury, as well as several other area communities, and a certified appraiser.  The assessors also introduced into evidence the requisite jurisdictional documents, the subject property's relevant property record cards and operating income and expense data, in addition to Mr. Dunn's "Valuation Defense Report."  The Board qualified both Mr. Wolff and Mr. Dunn as real estate valuation experts.
Appellant's Case-in-Chief
	After concluding that the subject property's highest-and-best use was its continued existing use as a retail property, Mr. Wolff valued the subject property using both sales-comparison and income-capitalization methodologies; however, because he did not rely on the value developed using his sales-comparison approach and did not testify about this methodology, the Board gave it no weight.  
	To value the subject property for the fiscal years at issue using an income-capitalization approach, Mr. Wolf first determined what he considered to be market rents.  He initially examined the actual contract rents at the subject property.  These rents, as well as the applicable lease terms, are reproduced in the following table, just as they appear in Mr. Wolff's summary appraisal report.

Tenant
	Lease Expires	Square Feet (SF)	Annual Rent ($)	
Rent/SF	
Lease Type	
Sudbury Farms	08/31/30	39,981	428,000	10.71	Modified Gross	
Sudbury Pharmacy	03/31/17	 1,800	 47,700	26.50	NNN	
Hercules Cleaner	05/31/16	 1,200	 30,000	25.00	NNN	
Fit Future	10/31/10	 2,700	 51,300	19.00	NNN	
Coldwell Banker	02/28/13	 3,300	 75,900	23.00	NNN	
Friendly's	05/16/16	N/A	  3,600	N/A	Gross, Land Lease	
TOTAL		48,981	632,900	12.92		

	In addition to the actual contract rents, Mr. Wolff reported that he also researched market rents in Sudbury, as well as in Wayland, Framingham, and Marlboro, and then focused on those rents from properties and spaces which he considered to be most comparable to the subject property and its space.  For retail space, those rents ranged from $13.25 to $23.32 per square foot on a triple-net basis and from $14.00 to $22.00 per square foot on a gross plus utilities basis.  Based on the actual contract and market rents, Mr. Wolf determined that a reasonable rent for the subject property's retail space for both fiscal years at issue was $23.00 per square foot on a triple-net basis.  For restaurant space, market rents ranged from $12.00 to $20.00 per square foot on a triple-net basis except for one restaurant's rent which was at $13.20 per square foot on a gross basis.  Based on these rents and the actual land lease, which in Mr. Wolff's opinion did not reflect the value of the structure, he determined that a reasonable rent for the subject property's restaurant space for both fiscal years at issue was $16.00 per square foot on a triple-net basis.  For supermarket space, Mr. Wolff considered only the subject property's actual contract rent plus one comparable in Wayland which rented for $10.47 per square foot on a gross plus utilities basis.  Based on this information, he selected a rent of $12.00 per square foot on a gross plus utilities basis for both fiscal years at issue.  The following table summarizes the potential gross income plus expense reimbursement that Mr. Wolff developed for the subject property for both fiscal years at issue.
Income	Square Feet ("SF")	Rent/SF	Annual Income	
Retail Space	 9,000	$23.00	$ 207,000	
Restaurant Space	 2,420	$16.00	$  38,720	
Supermarket Space	39,981	$12.00	$ 479,772	
Potential Gross Income ("PGI")	51,401		$ 725,492	
  Plus Expense Reimbursement			$  28,129	
PGI Plus Expense Reimbursement			$ 753,621	
        
	For vacancy and credit loss, Mr. Wolff reported that he spoke with local brokers and examined Co-Star statistics for the Sudbury market area.  This information produced ranges of 5% to 10% and 8.2% to 10%, respectively.  Based on these ranges plus the subject property's location, relative size, and current physical conditions, Mr. Wolff chose a vacancy and credit loss rate of 5% for the subject property for both fiscal years at issue, which resulted in an effective gross income ("EGI") of $715,940.  
	According to Mr. Wolff's summary appraisal report, leasing activity within the subject property's competitive market area indicated that the landlord is responsible for all operating expenses associated with the property.  This assertion, however, conflicts with the subject property's actual triple-net leases for retail and restaurant space, as well as Mr. Wolff's selection of market rents for these two types of rental spaces in his methodology.  The Board, therefore, assumed that he misspoke in his summary appraisal report.  Based on four purportedly comparable properties, located in Westborough, Framingham, and Wayland, Mr. Wolff reported that these expenses ranged from $1.82 to $5.04 per square foot, while the subject property's actual expenses reported by the appellant were $3.11 per square foot.  From this study, Mr. Wolff selected expenses of $2.75 per square foot, plus a management fee of 6% of EGI and a replacement reserve equal to 3% of PGI for both fiscal years at issue.   These selections generated total expenses in the amount of $206,074 which produced a net-operating income of $509,866 for both fiscal years at issue.  
	Mr. Wolff testified that he developed his capitalization rate for fiscal year 2012 utilizing a band-of-investment technique after obtaining from industry sources important underlying data, such as a mortgage-to-equity ratio of 75% to 25%, as well as mortgage interest and equity rates of 6.0% and 12.0%, respectively.  He similarly developed his capitalization rate for fiscal year 2013, but his industry sources instead suggested mortgage interest and equity rates of 5.0% and 13.0%, respectively.  Mr. Wolff then confirmed his 9% capitalization rate for fiscal year 2012 and his 8.5% capitalization rate for fiscal year 2013 with ranges and averages from various industry sources, including RealtyRates.com, Korpacz Reports, CB Richard Ellis Cap Rate Surveys, and Real Estate Research Corporation East Regional Investment Criteria.  To the capitalization rate that he developed using the band-of-investment technique, Mr. Wolff also added a tax factor of 1.838% for fiscal year 2012 and a tax factor of 1.884% for fiscal year 2013, based on 80.1% of the $22.95-per-thousand tax rate for fiscal year 2012 and the $23.52-per-thousand tax rate for fiscal year 2013.  Accordingly, the capitalization rates that he used in his methodology for fiscal years 2012 and 2013 were 10.838% and 10.384%, respectively. 
	By dividing his capitalization rates into the corresponding net incomes, Mr. Wolff estimated the values of the subject property at $4,704,429, which he rounded to $4,705,000 for fiscal year 2012 and $4,910,112, which he rounded to $4,910,000 for fiscal year 2013.  A summary of his income-capitalization methodology is contained in the following table.


INCOME                               Size(SF)   Rate/SF

Retail Space                          9,000     $23.00             $  207,000
Restaurant Space                      2,420     $16.00             $   38,720
Supermarket Space                    39,981     $12.00             $  479,772

Potential Gross Income ("PGI"):                                    $  725,492	

 Plus: Expense Reimbursement                                       $   28,129

Less: Vacancy & Collection Allowance - 5.0%
            
            ($   37,681)


	
Effective Gross Income ("EGI"):                                    $  715,940	
	
EXPENSES
	
  Management Fee - 6.00% of EGI = $42,956
  Replacement Reserves - 3.00% of PGI = $21,765
  Operating Expenses - $2.75/SF = $141,353       
  
Total Expenses:                                                   ($  206,074) 	
  	
Net-Operating Income:                                              $  509,866	
	
 Divide by: Total Capitalization Rate for Fiscal Year 2012 - 10.838%	
	
Indicated Value for Fiscal Year 2012                               $4,704,429
Rounded Value for Fiscal Year 2012                                 $4,705,000	


 Divide by: Total Capitalization Rate for Fiscal Year 2013 - 10.384%



Indicated Value for Fiscal Year 2013                               $4,910,112
Rounded Value for Fiscal Year 2013                                 $4,910,000

	
  	
Assessors' Case-in-Chief
In defense of the assessments, Bradford Dunn testified for the assessors and explained his submission entitled "Valuation Defense Summary" which accepted the current use of the subject property as its highest-and-best use and also examined: the price per square foot of four sales of what he considered to be similar strip plazas in Whitman, Malden, Fairhaven, and Uxbridge, as well as two sales of supermarkets in Spencer and Plymouth; assessments, leases, and pro formas associated with the subject property and two other strip plazas in Sudbury; and an estimate of the value of the subject property using an income-capitalization approach.
	The 2011 and 2012 sale prices of the strip plazas ranged from $149.57 to $216.04 per square foot, while the 2012 and 2013 sale prices of the supermarkets were $96.21 and $122.40 per square foot.  Even though Mr. Dunn did not rely on these sales or a sales-comparison approach to value the subject property, he nonetheless observed that the per-square-foot sales prices of the strip plazas, as well as one of the supermarkets, supported the subject property's assessments for the fiscal years at issue.
	With respect to the strip plaza located next to the subject property and one located just a short distance away on Boston Post Road, Mr. Dunn observed that their assessments of approximately $122 and $118 per square foot, respectively, were substantially higher than the subject property's assessment of approximately $101 per square foot, even though the subject property was considerably smaller.  He posited that this discrepancy likely meant that the subject property was actually under-assessed for the fiscal years at issue considering the similarities and comparability of the three properties, other than size.
	Lastly, Mr. Dunn estimated the value of the subject property using an income-capitalization approach.  He stated that he conservatively estimated the applicable rental rates relying on both actual contract rents and those at the two nearby competing strip plazas in Sudbury.  He reported that the rent that he used in his income-capitalization methodology reflected a weighted average rent for the subject property.  He further asserted that he used the highest vacancy rate and expenses suggested by his ranges of data.  His management fees, leasing commissions, and replacement reserves were drawn from data reflecting national markets.  While Mr. Dunn never directly expressed the type or types of leases that he used in his methodology, the amount of expenses that he includes suggests that he employed a triple-net leasing scenario for all of the rental space.
Mr. Dunn reported that he developed his capitalization rate using a band-of-investment approach which he verified with "national norms" in various national industry publications and then loaded in a rounded tax factor.  A summary of his methodology for both fiscal years is represented in the table below.
Potential Gross Income	57,481 SF x $15.00 =	$   862,215	
Vacancy	10%	($    86,221)	
Effective Gross Income		$   775,994	
Expenses:
  Commissions	
0.5%	
($     4,311)	
  Management	3.5%	($    27,160)	
  Legal & Audit	2.0%	($    15,520)	
  Miscellaneous	1.0%	($     7,760)	
  Reserves	$0.35/SF	($    20,118)	
  Tenant Fit Up	$4.00/SF	($    22,992)	
Total Expenses		($    97,861)	
			
Net Operating Income		$   678,133	
			
Capitalized @ 10%	7.4% + 2.35%	$ 6,781,330	
     
Based on his value of $6,781,330 and an area of 57,481 square feet, Mr. Dunn derived a per-square-foot value of $117.98 for the subject property for the fiscal years at issue.  In this way, Mr. Dunn determined that the subject property was not over-valued and that the assessments, if anything, under-valued the subject property for both fiscal years at issue.
The Board's Findings
	Consistent with both real estate valuation experts' determinations, the Board found that the highest-and-best use of the subject property for both fiscal years at issue was its then current use as a strip mall or plaza and that the preferred method for ascertaining the fair cash value of the subject property for both fiscal years at issue was through the application of an income-capitalization methodology.  The Board further found that the subject property's rentable space was equal to the area used by the appellant's real estate valuation expert, Mr. Wolff.  The evidence revealed that Mr. Wolff measured the subject property, while the assessors' real estate valuation expert simply relied on the subject property's property record cards which captured outside or gross measurements.
	As for rents, the Board adopted Mr. Wolff's approach of assigning specific rents to all three rental categories - retail, restaurant, and supermarket - as opposed to Mr. Dunn's one-size-fits-all approach.  The record indicated that Mr. Dunn used a weighted average, but his fairly sizable error concerning the actual amount of the subject property's rentable area adversely impacted any weighted average calculations, rendering them unreliable.  In addition, while Mr. Wolff's suggested market rents for retail and restaurant space were reasonably well documented, cross-examination revealed that he omitted from his analysis nearby and comparable supermarket rental space.  Notwithstanding this revelation, the evidence did not suggest that his proposed supermarket market rent was incorrect.  Rather, the Board found that the rental ranges from these properties, as well as nearby strip plazas, as reported by Mr. Dunn, supported Mr. Wolff's market rents.  Further, the weight of the evidence suggested that retail and restaurant spaces were rented on a triple-net basis while supermarket space was rented on a modified gross or gross plus utilities basis.  Mr. Dunn did not draw this distinction with his recommended rental rate.  The Board also noted that Mr. Dunn's PGI was lower than Mr. Wolff's after adjusting for rentable area and reimbursements.  For these reasons, the Board adopted Mr. Wolff's suggested market rents for retail, restaurant, and supermarket space, as well as his leasing scenarios and reimbursement amount.
	For vacancy and credit loss, Mr. Dunn recommended 10% while Mr. Wolff recommended just 5%.  The Board found that Mr. Wolff's rate better comported with the immediate Sudbury market while Mr. Dunn's rate was admittedly generous.  Accordingly, the Board adopted Mr. Wolff's 5% vacancy and credit loss rate.
	For expenses, Mr. Wolff's operating expenses, including his management fee of 6%, total approximately 26% of EGI.  In addition, he selected a replacement reserve equivalent to $0.42 per square foot.  Mr. Dunn's operating expenses totaled only 6.5% of EGI, including a management fee of 3.5%.  In addition he selected a replacement reserve of $0.35 per square foot, a tenant improvement of $4.00 per square foot, and a commission of 0.5% of EGI.
	Given the leasing scenarios, the limited expense reimbursement, and the underlying data in the record, the Board found that Mr. Wolff's total expense deduction was excessive, while Mr. Dunn's was too modest.  Accordingly, and based on the best available evidence, the Board selected a management fee of 4.5% of EGI, along with operating expenses totaling 16% of EGI.  In addition, the Board found that a replacement reserve of $0.40 per square foot was reasonable.  The Board did not adopt an expense category for tenant improvements where Mr. Wolff's methodology did not include one and the record is essentially devoid of any underlying information suggesting that it was part of this market's leasing scenarios.  Mr. Dunn based his tenant-improvement figure on a national survey which the Board found to be of little evidentiary value.  In addition, the Board did not adopt an expense category for leasing commissions.  Mr. Wolff did not include a category for this expense, and there is credible evidence to suggest that a strip plaza in the Sudbury market might do its leasing all in house.  As with his suggested tenant-improvement expense, Mr. Dunn based his leasing expense of 0.5% of PGI on a national survey, which the Board once again found to be of little evidentiary value.  Notwithstanding its adoption of a lower expense amount than Mr. Wolff's recommended total, the Board did not lower the reimbursement amount in its income category because, in the Board's methodology, that amount also reflects the partial real estate tax reimbursements which did not appear to be included in Mr. Wolff's total.  
As for a capitalization rate, the Board found that Mr. Wolff's was the better supported and developed of the two recommended by the parties' real estate valuation experts.  Mr. Dunn again relied primarily on national sources while Mr. Wolff's information was more localized.  Although Mr. Wolff's mortgage and equity returns appeared to be slightly high, they were nonetheless within the high realm of reasonableness.  The capitalization rates (before taxes) that he developed were supported by ranges gleaned from industry surveys and sources.  The Board determined, however, that Mr. Wolff's capitalization rates should be reduced by 0.5% to better comport with industry survey averages.  The Board further found that Mr. Wolff theoretically handled the tax factor appropriately given the leasing scenarios that he adopted, and the Board accepted his approach because it had adopted the same leasing scenarios and included a partial real estate tax reimbursement in its income category.  Accordingly, the Board added a tax factor of 1.838% for fiscal year 2012 and a tax factor of 1.884% for fiscal year 2013, based on 80.1% of the $22.95-per-thousand tax rate for fiscal year 2012 and the $23.52-per-thousand tax rate for fiscal year 2013.
The following table summarizes the Board's income- capitalization methodology for the subject property for both fiscal years at issue.


INCOME                               Size(SF)   Rate/SF

Retail Space                          9,000     $23.00             $  207,000
Restaurant Space                      2,420     $16.00             $   38,720
Supermarket Space                    39,981     $12.00             $  479,772

Potential Gross Income ("PGI"):                                    $  725,492	

 Plus: Expense Reimbursement                                       $   28,129

Less: Vacancy & Collection Allowance - 5.0%
            
            ($   37,681)


	
Effective Gross Income ("EGI"):                                    $  715,940	
	
EXPENSES
	
  Management Fee - 4.50% of EGI = $32,217
  Replacement Reserves - $0.40/SF = $20,560
  Operating Expenses - 16% of EGI = $114,550       
  
Total Expenses:                                                   ($  167,327) 	
  	
Net-Operating Income:                                              $  548,613	
	
 Divide by: Total Capitalization Rate for Fiscal Year 2012 - 10.338%	
	
Indicated Fair Cash Value for Fiscal Year 2012                     $5,306,761
Rounded Fair Cash Value for Fiscal Year 2012                       $5,305,000	


 Divide by: Total Capitalization Rate for Fiscal Year 2013 - 9.884%



Indicated Fair Cash Value for Fiscal Year 2013                     $5,550,516
Rounded Fair Cash Value for Fiscal Year 2013                       $5,550,000

	
  

	Based on these suggested rounded fair cash values, the Board decided both appeals for the appellant and ordered abatements in the amounts calculated in the following table.

Fiscal Year	Assessment 	Fair Cash Value	Over-Valuation	Tax Rate per $1,000	Tax Abatement	
2012	$5,800,000	$5,305,000	$495,000	$22.95	$11,360.25	
2013	$5,800,000	$5,550,000	$250,000	$23.52	$ 5,880.00	

OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38.  Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion.  Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).  In determining fair market value, all uses to which the property was or could reasonably be adapted on the relevant assessment dates should be considered.  Newton Girl Scout Council, Inc. v. Massachusetts Turnpike Authy., 335 Mass. 189, 193 (1956); Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989).  The idea is to ascertain the maximum value of the property for any legitimate and reasonable use.  Id.  If the property is particularly well-suited for a certain use that is not prohibited, then that use may be reflected in an estimate of its fair market value.  Colonial Acres, Inc. v. North Reading, 3 Mass. App. Ct. 384, 386 (1975).  On this basis, the Board ruled that the highest-and-best use of the subject property during the fiscal years at issue in these appeals was its continued use as a multi-tenanted, retail and restaurant plaza.  Both the assessors and the appellant's real estate valuation expert also valued the subject property on this premise.         
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to determine the fair cash value of property: income capitalization, sales comparison, and cost.  Correia v. New Bedford Redevelopment Authority,   375 Mass. 360, 362 (1978).  "The board is not required to adopt any particular method of valuation."  Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).  
In these appeals, the Board ruled that the sales-comparison approach was not an appropriate methodology to use to estimate the value of the subject property under the circumstances.  The Board found that there were not enough market sales of reasonably comparable properties or enough evidence in the record on converting leased-fee sale prices to fee-simple ones to meaningfully estimate the value of the subject property using a sales-comparison technique.  In addition, neither real estate valuation expert relied on this approach to estimate the value of the subject property even though they each examined and analyzed some sales of similar properties.  
Furthermore, the Board ruled that "[t]he introduction of evidence concerning the value based on [cost] computations has been limited to special situations in which data cannot be reliably computed under the other two methods." Correia, 375 Mass. at 362.  The Board found here that no such "special situations" existed, and, even if they did, there was not enough evidence in the record on which to base a value using a cost approach.  Neither real estate value expert chose this method to estimate the value of the subject property, nor did they introduce any direct evidence supporting this technique.  Accordingly, the Board ruled that this method of valuation was not an appropriate technique to use for valuing the subject property during the fiscal years at issue in these appeals. 
The appellant's real estate valuation expert relied on an income-capitalization methodology to estimate the value of the subject property.  The assessors' real estate valuation expert also employed an income-capitalization technique.  The use of the income-capitalization approach is appropriate when reliable market sales data are not available.  Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 810, 811 (1975); Assessors of Lynnfield v. New England Oyster House, 362 Mass. 696, 701-702 (1972); Assessors of Quincy v. Boston Consol. Gas Co., 309 Mass. 60, 67 (1941).  It is also an appropriate technique to use for valuing income-producing property.  Id. at 64-65.  In these appeals, the Board relied exclusively on the value determined from its income-capitalization methodology because the other approaches were not appropriate, and the method that the Board used was equivalent to what buyers and sellers in the marketplace would have used under similar circumstances.   See New Boston Garden Corp., 383 Mass. 456, 469 (1981); New England Oyster House, Inc., 362 Mass. at 701-702.
The income stream used in the income-capitalization method must reflect the property's earning capacity or economic rental value.  Pepsi-Cola Bottling Co., 397 Mass. at 451.  Imputing rental income to the subject property based on fair market rentals from comparable properties is evidence of value if, once adjusted, they are indicative of the subject property's earning capacity.  See Correia v. New Bedford Redevelopment Auth., 5 Mass. App. Ct. 289, 293-94 (1977), rev'd on other grounds, 375 Mass. 360 (1978); Library Services, Inc. v. Malden Redevelopment Auth., 9 Mass. App. Ct. 877, 878 (1980)(rescript); Avco Manufacturing Corp. v. Assessors of Wilmington, Mass. ATB Findings of Fact and Reports 1990-142, 166.  After accounting for vacancy and rent losses, the net-operating income is obtained by deducting the landlord's appropriate expenses.  Pepsi-Cola Bottling Co., 397 Mass. at 452-53.  Generally, the selection of expenses is for the Board.  Id.  
The Board's calculation of its gross-income figures here was based on the leasable area measured by Mr. Wolff and the market rents and reimbursements suggested by his underlying data which he obtained from the subject property and other retail, restaurant, and supermarket properties in the subject property's market.  The Board found that the weight of the evidence supported Mr. Wolff's supposition that the retail and restaurant spaces rented on a triple-net basis while supermarket space rented on a modified gross or gross plus utilities basis.  The Board likewise adopted the 5% vacancy and credit loss rate recommended by Mr. Wolff because it was based on local data.  Mr. Dunn admitted that his higher rate was "generous."  
For expenses, Mr. Wolff's operating expenses, including his management fee of 6%, total approximately 26% of EGI.  In addition, he selected a replacement reserve equivalent to $0.42 per square foot.  Mr. Dunn's operating expenses totaled only 6.5% of EGI, including a management fee of 3.5%.  In addition he selected a replacement reserve of $0.35 per square foot, a tenant improvement of $4.00 per square foot, and a commission of 0.5% of EGI.
	Given the leasing scenarios, the limited expense reimbursement, and the underlying data in the record, the Board found that Mr. Wolff's total expense deduction was excessive, while Mr. Dunn's was too modest.  Accordingly, and based on the best available evidence, the Board selected a management fee of 4.5% of EGI, along with operating expenses totaling 16% of EGI.  In addition, the Board found that a replacement reserve of $0.40 per square foot was reasonable.  The Board did not adopt an expense category for tenant improvements where Mr. Wolff's methodology did not include one and the record is essentially devoid of any underlying information suggesting that it was part of this market's leasing scenarios.  Mr. Dunn based his tenant-improvement figure on a national survey which the Board found to be of little evidentiary value.  In addition, the Board did not adopt an expense category for leasing commissions.  Mr. Wolff did not include a category for this expense, and there is credible evidence to suggest that a strip plaza in the Sudbury market might do its leasing all in house.  As with his suggested tenant-improvement expense, Mr. Dunn based his leasing expense of 0.5% of PGI on a national survey, which the Board once again found to be of little evidentiary value.  Notwithstanding its adoption of a lower expense amount than Mr. Wolff's recommended total, the Board did not lower the reimbursement amount in its income category because, in the Board's methodology, that amount also reflects the partial real estate tax reimbursements which did not appear to be included in Mr. Wolff's total.  "The issue of what expenses may be considered in any particular piece of property is for the board."  Alstores Realty Corp. v. Assessors of Peabody, 391 Mass. 60, 65 (1984).  The Board found and ruled that the income and expense figures which it selected were reasonable and appropriate under the circumstances. 	 
The capitalization rate chosen should consider the return necessary to attract investment capital.  Taunton Redevelopment Assoc. v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  Use of the "tax factor" is unnecessary under the triple-net premise because the rental income reflects the assumption that the tenant pays the taxes.  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 610 (1984).  However, where, as here, the landlord is obligated to pay a portion of the real estate taxes, a prorated tax factor should be applied.  See, e.g., Market Forge Industries, Inc. v. Assessors of Everett, Mass. ATB Findings of Fact and Reports 2014-186, 209-10, and the cases cited therein.  Relying on these principles, the underlying data, and the appellant's real estate valuation expert's recommendations, which were better supported and developed than Mr. Dunn's, the Board determined that Mr. Wolff's capitalization rates should be reduced by 0.5% to better comport with industry survey averages.  The Board further found that Mr. Wolff handled the tax factor appropriately given the leasing scenarios that he adopted, and the Board accepted his approach because it had adopted the same leasing scenarios and included a partial real estate tax reimbursement in its income category.  The Board, therefore, adopted partially loaded capitalization rates for both fiscal years at issue.  
	In reaching its opinion of fair cash value in these appeals, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that an expert witness suggested; rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight.  Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 683 (1982); New Boston Garden Corp., 383 Mass. at 473; New England Oyster House, Inc., 362 Mass. at 702.  In evaluating the evidence before it, the Board selected among the various elements of value and formed its own independent judgment of fair cash value.  General Electric Co., 393 Mass. at 605; North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984).  The Board need not specify the exact manner in which it arrived at its valuation.  Jordan Marsh v. Assessors of Malden, 359 Mass. 106, 110 (1971).  The fair cash value of property cannot be proven with "mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment."  Boston Consol. Gas Co., 309 Mass. at 72.  "The credibility of witnesses, the weight of the evidence, and inferences to be drawn from the evidence are matters for the board."   Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).  
	"'The burden of proof is upon the [appellant] to make out its right as a matter of law to abatement of the tax.'"  Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974)(quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)).  The appellant must show that it has complied with the statutory prerequisites to its appeal, Cohen v. Assessors of Boston, 344 Mass. 268, 271 (1962), and that the assessed valuation of its property was improper.  See Foxboro Associates, 385 Mass. at 691.  The assessment is presumed valid until the taxpayer sustains its burden of proving otherwise.  Schlaiker, 365 Mass. at 245.  The Board found and ruled here that the appellant met its burden of proving that the subject property was overvalued for both fiscal years at issue in these appeals.
On these bases, the Board found and ruled that the fair cash value of the subject property for fiscal years 2012 and 2013 was $5,305,000 and $5,550,000, respectively.  Accordingly, the Board decided that the subject property was overvalued in the amount of $495,000 for fiscal year 2012 and $250,000 for fiscal year 2013. The Board, therefore, granted the appellant abatements for fiscal years 2012 and 2013 in the respective amounts of $11,360.35 and $5,880.00.

   					    THE APPELLATE TAX BOARD



  	By: ________________________________________
                             Thomas W. Hammond, Jr., Chairman

A true copy,                 

Attest: ___________________________
  Clerk of the Board

 Although the assessors received the abatement application on February 2, 2012, it was mailed on February 1, 2012 and, therefore, deemed to be timely filed on February 1, 2012. See G.L. c. 59, § 59 and 831 CMR 1.13.

 In the narrative of his summary appraisal report, Mr. Wolff reported a replacement reserve of 2% but used 3% in his income and expense statement and the mathematical rendition of his methodology.  
 The Board corrected several small errors contained in Mr. Dunn's "pro forma," including his value.

ATB 2014-331